Employment Protection Legislation and Cooperation

Kyota Eguchi

LABOUR, 2018, vol. 32, issue 1, 45-73

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.

Date: 2018
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