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Setting It Right: Employment Protection, Labour Reallocation and Productivity

Author

Listed:
  • Martin, John P.

    (University College Dublin)

  • Scarpetta, Stefano

    (OECD)

Abstract
This paper provides a critical review of the recent empirical evidence on the links between regulations affecting the hiring and firing of workers, labour reallocation and productivity growth. It also reviews how workers affected by labour mobility fare and discusses policy options to support them. The upshot is that employment protection has a sizeable effect on labour market flows and these flows, in turn, have significant impacts on productivity growth. At the same time, the evidence also shows that while greater labour market reallocation benefits many workers through higher real wages and better careers, some displaced workers lose out via longer unemployment durations and/or lower real wages in post-displacement jobs. In this context, reforms of employment protection should be considered as part of a comprehensive package that also includes an adequate safety net for the unemployed and effective re-employment services.

Suggested Citation

  • Martin, John P. & Scarpetta, Stefano, 2011. "Setting It Right: Employment Protection, Labour Reallocation and Productivity," IZA Policy Papers 27, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp27
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    More about this item

    Keywords

    productivity; employment protection; job and worker flows;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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