Discussion Paper 36

Employment protection, productivity, wages and jobs in Europe

Ana Rincon-Aznar1 and W. S. Siebert2

National Institute of Economic and Social Research (NIESR), London
Birmingham Business School (BHAM), Birmingham, UK

 

Abstract

In this paper, we use industry data for 11 OECD countries over the period 1984-2007 to test or productivity, wages and employment effects of employment protection legislation (EPL).  In accordance with conventional competitive theory, we find that EPL both lowers productivity and produces a compensating wage differential that lowers wages.  Manufacturing appears more constrained by EPL than services. In both sectors, an important result is that employment is not reduced by EPL. The downside seems to be an increase in hours worked per worker, which implies that EPL concentrates employment on those who already have it.

 

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Employment protection, productivity, wages and jobs in Europe

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This project is funded by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities.

Grant Agreement no:244 709

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