Employment Protection and Labor Productivity: Positive or Negative?

Sara Pinoli

MPRA Paper from University Library of Munich, Germany

Abstract: Since the 1980s, many European countries have implemented labor market reforms, introducing more flexible labor contracts. This paper develops a matching model with heterogeneous matches in order to analyse the impact of employment protection on labor productivity. Several channels affects productivity. On one hand, flexible contracts reduce mismatching: low productive jobs are destroyed at no cost with a positive impact on the overall productivity. On the other hand, they imply lower human capital investment, reducing labor productivity. We analyze a third channel: the selection of the employees. Low costs of dismissal reduce the incentive of firms to invest in screening applicants, therefore increasing the uncertainty about their unobserved skills and productivity.

Keywords: Employment protection; Stochastic.job matching model; Screening (search for similar items in EconPapers)
JEL-codes: J24 J41 (search for similar items in EconPapers)
Date: 2007-12-10
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11775

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