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On the evasion of employment protection legislation

  • Baumann, Florian
  • Friehe, Tim

This paper analyzes how the option to evade employment protection legislation impacts on unemployment. Using a stylized model, it is established that the level of unemployment is non-monotonous in the degree of strictness with which employment protection legislation is enforced. Considering just cause and social criteria requirements for three regulatory regimes representative of a large number of industrialized countries, we find that different regimes generate different dismissal decisions only if the regimes are strictly enforced. In contrast, unemployment rates may differ across regimes even in the case of weak enforcement. Additionally, we find that it may be worse for the economy to weakly enforce harmful regulations than to strictly enforce them.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927537111000662
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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 1 ()
Pages: 9-17

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Handle: RePEc:eee:labeco:v:19:y:2012:i:1:p:9-17
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  1. Leif Danziger, 2009. "Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms," CESifo Working Paper Series 2740, CESifo Group Munich.
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