Welfare‐Improving Employment Protection

Michèle Belot, Jan Boone and Jan van Ours

Economica, 2007, vol. 74, issue 295, 381-396

Abstract: 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.

Date: 2007
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https://doi.org/10.1111/j.1468-0335.2006.00576.x

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Working Paper: Welfare Improving Employment Protection (2004)
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