Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium

60 Pages Posted: 12 Apr 2004 Last revised: 2 Jul 2021

See all articles by Katharine G. Abraham

Katharine G. Abraham

University of Maryland - Joint Program in Survey Methodology and Department of Economics; National Bureau of Economic Research (NBER)

Susan N. Houseman

W.E. Upjohn Institute for Employment Research

Date Written: June 1993

Abstract

Laws in most Western European countries give workers strong job rights, including the right to advance notice of layoff and the right to severance pay or other compensation if laid off. Many of these same countries also encourage hours adjustment in lieu of layoffs by providing prorated unemployment compensation to workers on reduced hours. This paper compares the adjustment of manufacturing employment and hours in West Germany, France and Belgium, three countries with strong job security regulations and well-established short-time compensation systems, with that in the United States. Although the adjustment of employment to changes in output is much slower in the German, French and Belgian manufacturing sectors than in U.S. manufacturing, the adjustment of total hours worked is much more similar. The short-time system makes a significant contribution to observed adjustment in all three European countries. In addition, we find little evidence that the weakening of job security regulations that occurred in Germany, France and Belgium during the 1980s affected employers' adjustment to changes in output. These findings suggest that. given appropriate supporting institutions. strong job security need not inhibit employer adjustment to changing conditions.

Suggested Citation

Abraham, Katharine G. and Houseman, Susan N., Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium (June 1993). NBER Working Paper No. w4390, Available at SSRN: https://ssrn.com/abstract=420299

Katharine G. Abraham (Contact Author)

University of Maryland - Joint Program in Survey Methodology and Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Susan N. Houseman

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

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