Employment Protection Legislation

Employment Protection Legislation

Evolution, Effects, Winners and Losers

Per Skedinger

Employment protection legislation is one of the most controversial issues in the labour market. In this insightful book, Per Skedinger provides an overview of the design, evolution and research on the effects of employment protection legislation around the world.

Chapter 3: What are the Conceivable Effects of Employment Protection Legislation?

Per Skedinger

Subjects: economics and finance, labour economics


The effects of employment protection discussed in this chapter are taken solely from theoretical reasoning and are not based on empirical evidence, which will be presented in Chapters 4 and 5. The immediate consequences of employment protection are that the employer’s costs rise for adjusting the size of the work force and its composition. The need to adjust the size of the work force is determined by the demand for the company’s products and services, while the composition may need to be changed if the employee’s competence or work effort is seen as insufficient. The adjustment costs can also give rise to a number of sequential effects on, for example, employment, unemployment, structural change, productivity and growth. Firing costs not only decrease the employer’s inclination to lay off an employee, but also his or her willingness to hire new recruits. The latter effect is due to the fact that the firm incorporates potential future costs in the case of a lay-off already in the hiring decision. With higher firing costs, greater uncertainty regarding the factors which 57 PSkedinger_03_Finals.indd 57 1/27/2010 3:57:13 PM 58 Employment protection legislation determine the size of the work force will make the company more reluctant to hire someone. For instance, it can be difficult to determine in advance how a new employee will fit in to a work group or an organization and how this employee will manage the company’s routines, especially if the employee in question lacks earlier work...

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