DP3396 | Welfare Effects of Employment Protection

Publication Date

20/05/2002

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Abstract

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.