Experience Rating versus Employment Protection Laws in a Model where Firms Monitor Workers

Julia Fath and Clemens Fuest

Scandinavian Journal of Economics, 2005, vol. 107, issue 2, 299-314

Abstract: While layoff costs in the U.S. are mostly due to experience‐rated unemployment insurance, layoff costs in European labour markets are primarily a consequence of employment protection laws. In this paper we compare the effects of experience rating and employment protection laws on employment and welfare in a model where unemployment arises due to efficiency wage setting and where labour turnover is inefficiently high. We show that a revenue‐neutral introduction of experience rating reduces labour turnover and increases employment and welfare. The introduction of employment protection laws may also reduce labour turnover but employment declines.

Date: 2005
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https://doi.org/10.1111/j.1467-9442.2005.00409.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:107:y:2005:i:2:p:299-314

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