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DP3396 Welfare Effects of Employment Protection

Author(s): Michèle Belot , Jan Boone , Jan C van Ours
Publication Date: May 2002
Keyword(s): employment protection , human capital , hold-up , reforms , welfare
JEL(s): J41 , J63 , J68
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/pubs/dps/DP3396.asp


Employment protection is often related to costs incurred by firms when they fire a worker. The stability of the employment relationship, enhanced by employment protection, is also favourable to the productivity of the job. We analyse employment protection focusing on this trade-off between adjustment costs and productivity. We show that from a welfare point of view there is an optimal degree of employment protection.

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