The Impact of Employment Protection on the Industrial Wage Structure

36 Pages Posted: 17 Sep 2018

See all articles by John S. Heywood

John S. Heywood

University of Wisconsin at Milwaukee

Mary O'Mahony

National Institute of Economic and Social Research (NIESR); University of Birmingham - Business School

Stanley Siebert

Business School, University of Birmingham; IZA Institute of Labor Economics; Institute of Economic Affairs (IEA)

Ana Rincon-Aznar

National Institute of Economic and Social Research (NIESR)

Abstract

This paper tests whether the job security offered by stricter employment protection legislation (EPL) undermines positive compensating wage differentials that would otherwise be paid. Specifically, we ask whether industries with relatively more need for layoffs and labour flexibility have lower wages in countries where stricter EPL protects workers from layoffs. We find this generally to be true for a large sample of industries in the major OECD countries over 1984-2005, particularly for wages of unskilled workers. However, we also find that where workers are well organised, they can take advantage of EPL to secure higher wages.

Keywords: employment protection legislation, labour regulation, compensating wage differentials, education and inequality, labour organisation, layoffs

JEL Classification: I24, J31, J41, J50, J63, J83, K31, K51, L51, M50

Suggested Citation

Heywood, John S. and O'Mahony, Mary and Siebert, Stanley and Rincon-Aznar, Ana, The Impact of Employment Protection on the Industrial Wage Structure. IZA Discussion Paper No. 11788. Available at SSRN: https://ssrn.com/abstract=3249902

John S. Heywood (Contact Author)

University of Wisconsin at Milwaukee ( email )

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Mary O'Mahony

National Institute of Economic and Social Research (NIESR) ( email )

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University of Birmingham - Business School

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Stanley Siebert

Business School, University of Birmingham ( email )

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IZA Institute of Labor Economics

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Institute of Economic Affairs (IEA) ( email )

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Ana Rincon-Aznar

National Institute of Economic and Social Research (NIESR)

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