The Detrimental Effect of Job Protection on Employment: Evidence from France

Pierre Cahuc, Franck Malherbet and Julien Prat

No 12384, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: According to French law, employers have to pay at least six months salary to employees whose seniority exceeds two years in case of unfair dismissal. We show, relying on data, that this regulation entails a hike in severance payments at two-year seniority which induces a significant rise in the job separation rate before the two-year threshold and a drop just after. The layoff costs and its procedural component are evaluated thanks to the estimation of a search and matching model which reproduces the shape of the job separation rate. We find that total layoff costs increase with seniority and are about four times higher than the expected severance payments at two years of seniority. Counterfactual exercises show that the fragility of low-seniority jobs implies that layoff costs reduce the average job duration and increase unemployment for a wide set of empirically relevant parameters.

Keywords: employment protection legislation; dismissal costs; unemployment (search for similar items in EconPapers)
JEL-codes: J32 J63 J65 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2019-05
New Economics Papers: this item is included in nep-lab and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: The Detrimental Effect of Job Protection on Employment: Evidence from France (2019)
Working Paper: The Detrimental Effect of Job Protection on Employment: Evidence from France (2019)
Working Paper: The Detrimental Effect of Job Protection on Employment: Evidence from France (2019)
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