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Welfare‐Improving Employment Protection
Author(s) -
BELOT MICHÈLE,
BOONE JAN,
VAN OURS JAN
Publication year - 2007
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00576.x
Subject(s) - contractible space , economics , welfare , bargaining power , labour economics , wage , minimum wage , microeconomics , market economy , mathematics , combinatorics
This paper derives new results on the welfare effects of employment protection. Using data from 17 OECD countries, we show that there exists an inverse U‐shape relationship between employment protection and economic growth. Using a simple theoretical model with non‐contractible specific investments, we show that over some range increasing employment protection does indeed raise welfare. We also show that the optimal level of employment protection depends on other labour market features, such as the bargaining power of workers and the existence of wage rigidities like the minimum wage.