Employment Protection Reform in European Labor Markets: The Collective Bargaining Regime Matters

Francesco de Palma () and Yann Thommen
Additional contact information
Francesco de Palma: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Post-Print from HAL

Abstract: Policy advisers repeatedly call on Western European countries to reform their employment protection legislation (EPL) by switching to a layoff tax model of unemployment insurance (UI) funding. This new design, partly based on the existing "experience-rating" (ER) system in the U.S., should induce firms to internalize layoff fiscal costs and hence reduce unemployment. However, its success remains uncertain in economies with a collective wage-setting system, as do those of many Western European countries. Using a matching model with endogenous job destruction, we provide an ex-ante evaluation of this policy reform's effects on labor market outcomes and aggregate welfare in firm-level and sector-level bargaining economies. Our numerical analyses yield two main results. First, compared to simply increasing firing/dismissal costs, implementing an ER system improves labor market outcomes in both types of economies. Second, the design of the reform has to be adapted to the level of wage bargaining in the economy. Because firms can adjust most of the terms and conditions of employment (including wages) in decentralized negotiations, adding ER to existing EPL yields the largest reduction in unemployment under firm-level bargaining, while with sector-level bargaining, ER is better implemented with a relaxation of existing EPL. However, if the aim is to increase aggregate welfare, it is better under both bargaining regimes to relax existing EPL when implementing ER.

Keywords: Search and matching models; Collective bargaining; Experience rating; Employment protection (search for similar items in EconPapers)
Date: 2020-07-11
References: Add references at CitEc
Citations:

Published in Economist, 2020, 168 (4), pp.541-575. ⟨10.1007/s10645-020-09370-1⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Employment Protection Reform in European Labor Markets: The Collective Bargaining Regime Matters (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02981359

DOI: 10.1007/s10645-020-09370-1

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().