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Employment Protection Regulations and Their Impact on Employment

  • Wolfgang Pointner


    (Oesterreichische Nationalbank)

Registered author(s):

    Employment protection legislation (EPL) forms part of the institutional framework governing labor market allocation processes. It increases the costs enterprises incur when terminating contracts, either directly via severance payments or indirectly via procedural costs (e.g. notice periods or court trials). EPL is often considered to be the main reason for the high unemployment level in several euro area countries. While the empirical evidence for this correlation is generally rather weak, more robust results are found for its adverse impact on the employment opportunities of certain sociodemographic groups – especially women and the young. Another means to reduce the income risk associated with job loss are unemployment insurance benefits, which – contrary to employment protection – do not affect the employment opportunities of specific sociodemographic groups. An analysis of the effects of EPL on employment certainly needs to take into consideration other labor market institutions, too, as they are often highly correlated and their effects interact. Insofar as employment protection not only stabilizes the protected employees’ income, but also serves as an incentive to acquire firm-specific human capital, a certain degree of employment protection can also contribute to gross domestic product (GDP) growth.

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    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

    Volume (Year): (2006)
    Issue (Month): 3 ()
    Pages: 44–57

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    Handle: RePEc:onb:oenbmp:y:2006:i:3:b:3
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