Turning Pink Slips into Red Tape: The Unintended Effects of Employment Protection Legislation

Forthcoming, Contemporary Economic Policy

35 Pages Posted: 22 Jun 2016 Last revised: 26 Jul 2016

See all articles by Harlan Holt

Harlan Holt

Northern Illinois University - Department of Economics

Joshua R. Hendrickson

University of Mississippi

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2016

Abstract

This paper presents evidence on the link between employment protection legislation (EPL) and the rate of unemployment in a cross-country panel data set of OECD countries from 1985-2013. 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 employment protection legislation 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.

Keywords: Unemployment, Employment Protection Legislation

JEL Classification: E24, J68, J65, J63

Suggested Citation

Holt, Harlan and Hendrickson, Joshua R., Turning Pink Slips into Red Tape: The Unintended Effects of Employment Protection Legislation (July 26, 2016). Forthcoming, Contemporary Economic Policy, Available at SSRN: https://ssrn.com/abstract=2798963 or http://dx.doi.org/10.2139/ssrn.2798963

Harlan Holt

Northern Illinois University - Department of Economics ( email )

DeKalb, IL 60115
United States

Joshua R. Hendrickson (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

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