DP3396 Welfare Effects of Employment Protection

Author(s): Michèle Belot, Jan Boone, Jan C. van Ours
Publication Date: May 2002
Keyword(s): employment protection, hold-up, human capital, reforms, welfare
JEL(s): J41, J63, J68
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3396

Employment protection is often related to costs incurred by firms when they fire a worker. The stability of the employment relationship, enhanced by employment protection, is also favourable to the productivity of the job. We analyse employment protection focusing on this trade-off between adjustment costs and productivity. We show that from a welfare point of view there is an optimal degree of employment protection.