TURNING PINK SLIPS INTO RED TAPE: THE UNINTENDED EFFECTS OF EMPLOYMENT PROTECTION LEGISLATION |
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| Authors: | Harlan Holt Joshua R. Hendrickson |
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| Affiliation: | 1. 224-392-3854815-752-1019;2. Visiting Assistant Professor, Department of Economics, Northern Illinois University, DeKalb, IL |
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| Abstract: | This article presents evidence on the link between employment protection legislation (EPL) and the rate of unemployment in a cross‐country panel dataset of Organisation for Economic Co‐operation and Development countries from 1985 to 2013. We use both a traditional panel specification with lags of the policy variable, and also a unique structural panel vector autoregression (PVAR) method to determine the long‐run dynamic interaction between EPL and unemployment. We confirm that more restrictive EPL for permanently employed workers causes a significant and persistent increase in unemployment, but the effect is only apparent at long‐lag lengths, some 2–5 years after the law has been implemented. (JEL J68, J65, J63) |
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