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Employment Protection Legislation and Cooperation
Author(s) -
Eguchi Kyota
Publication year - 2018
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/labr.12116
Subject(s) - severance , legislation , payment , employment protection legislation , wage , business , labour economics , public economics , economics , microeconomics , finance , law , unemployment , macroeconomics , political science
Abstract I argue how cooperative behaviors are influenced by employment protection legislation ( EPL ), which is viewed in terms of two types of firing costs: administrative costs (such as notification procedures) and monetary transfers (such as severance pay). I focus on the minimum discount factor for mutual cooperation under trigger strategies in a relational contract model, where a firm has two payment options: a formal wage and an informal bonus. It will be shown that administrative costs enhance cooperation when they are low, whereas monetary transfers dampen cooperation when they are high. In addition, I show under what wage scheme cooperation is most likely self‐enforced.