From Dual to Unified Employment Protection: Transition and Steady State
44 Pages Posted: 13 Dec 2015 Last revised: 17 Jan 2018
Date Written: January 1, 2018
We develop a computationally tractable model to study the allocational and distributional consequences of replacing a highly dual employment protection legislation (EPL) system with a unified EPL scheme. To illustrate our approach, we specialise the discussion to Spain – a country considered as an epitome of a labour market with dual EPL. First, we show that introducing a unified EPL scheme reduces unemployment and worker turnover at short job tenures. However, these changes are quantitatively limited as most of the adjustments occur through a change in bargained wages. Second, as a consequence, the policy reform has very heterogeneous effects on the lifetime value and on the volatility of labour income. The results support the view that replacing dual EPL with a unified scheme creates winners and losers among workers who are employed when the reform is implemented.
Keywords: Employment Protection; Dualism; Labour Market Reform
JEL Classification: E24, J63, J65
Suggested Citation: Suggested Citation