Why is Employment Protection Stricter in Europe than in the United States?

Michèle Belot ()

Economica, 2007, vol. 74, issue 295, pages 397-423

Abstract: I argue that the reason why the United States prefers a lower level of employment protection than the European countries lies in the differences in gains and costs from geographical mobility. I present a model in which labour migration and employment protection are both determined endogenously. The labour market is modelled within a matching framework, where the employment protection reduces both the job finding and job firing rates. Countries with low migration costs and high economic heterogeneity may prefer no employment protection so that workers can move quickly to better horizons rather than being maintained in low productive activities. Copyright (c) The London School of Economics and Political Science 2006.

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