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The impact of EPL on labour productivity in a general equilibrium matching model


  • Lisi, Domenico

    () (University of Catania, Department of Economics and Quantitative Methods)


The standard analysis of the impact of EPL on labour market outcomes concentrates mainly on unemployment, disregarding the possible effect on productivity. In this paper we make (a component of) labour productivity endogenous and analyze how the presence of a stringent protection legislation affects labour market in an equilibrium matching model with endogenous job destruction. Indeed, considering labour productivity an endogenous could be important not only in the case of EPL, but also for all kind of personnel policy evaluation. In this framework high labour productivity on one hand is costly in terms of effort, on the other hand is beneficial in terms of lower job destruction. We find that high firing costs partially substitute high labour productivity in reducing job destruction and this, consequently, brings down the optimal level of productivity. Moreover, the impact of EPL on unemployment is ambiguous but numerical exercises show unambiguously how higher firing restrictions reduce different measures of aggregate welfare. To some extent, the clear emergence of these results is full of policy implication and, indeed, rationalizes the recent empirical evidence on the impact of EPL.

Suggested Citation

  • Lisi, Domenico, 2010. "The impact of EPL on labour productivity in a general equilibrium matching model," DEMQ Working Paper Series 2010/8, University of Catania, Department of Economics and Quantitative Methods.
  • Handle: RePEc:ris:demqwp:2010_008

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    More about this item


    Employment protection; Endogenous labour productivity; Job destruction;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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