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

18 Pages Posted: 30 May 2017

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 2017

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 Classification: 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 2017). Contemporary Economic Policy, Vol. 35, Issue 3, pp. 421-438, 2017, Available at SSRN: https://ssrn.com/abstract=2976565 or http://dx.doi.org/10.1111/coep.12198

Harlan Holt (Contact Author)

Northern Illinois University - Department of Economics ( email )

DeKalb, IL 60115
United States

Joshua R. Hendrickson

University of Mississippi ( email )

Oxford, MS 38677
United States

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