Does Employment Protection Create Its Own Political Support?

Björn Brügemann ()
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Björn Brügemann: Vrije Universiteit Amsterdam
Authors registered in the RePEc Author Service: Bjoern A. Bruegemann

No 2286, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates the ability of employment protection to generate its own political support. A version of the Mortensen-Pissarides model is used for this purpose. Under the standard assumption of Nash bargaining, workers value employment protection because it strengthens their hand in bargaining. Workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer. By reducing turnover employment protection shifts the distribution of match-specific productivity toward lower values. Thus stringent protection in the past actually reduces support for employment protection today. Introducing involuntary separations is a way of reversing this result. Now workers value employment protection because it delays involuntary dismissals. Workers in low productivity matches gain most since they face the highest risk of dismissal. The downward shift in the productivity distribution is now a shift towards ardent supporters of employment protection. In a calibrated example this mechanism sustains both low and high employment protection as stationary political outcomes. A survey of German employees provides support for employment protection being more strongly favored by workers likely to be dismissed.

Keywords: employment protection; wage determination; search and matching; political economy (search for similar items in EconPapers)
JEL-codes: E24 J41 J65 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2006-09
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - published in: Journal of the European Economic Association, 2012, 10 (2), 369 - 416

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Related works:
Journal Article: DOES EMPLOYMENT PROTECTION CREATE ITS OWN POLITICAL SUPPORT? (2012)
Working Paper: Does Employment Protection Create Its Own Political Support? (2006)
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