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The impact of increasing labour market rigidity on employment growth in OECD countries

Author

Listed:
  • Wiese, Rasmus
  • Jalles, João Tovar
  • de Haan, Jakob

Abstract

This paper examines how labour market counter-reforms, i.e., measures that make it more difficult to hire and fire workers and that increase unemployment benefits, affect employment growth in 25 OECD countries. Although counter-reforms occur frequently, they have received little attention in empirical research. The theoretical effects of labour market counter-reforms on employment are ambiguous. For instance, higher firing costs may decrease employment as employers are less willing to hire. However, employment may also increase as layoffs may decline due to more stringent firing constraints. Moreover, the effects may depend on the type of contract; workers with a temporary contract have less employment protection. Increasing their protection may increase labour supply notably in an economic upswing when the labour market is tight. Our results suggest that employment protection counter-reforms for temporary workers increase employment growth when the economy is performing above trend. The effects of counter-reforms of unemployment benefits are insignificant.

Suggested Citation

  • Wiese, Rasmus & Jalles, João Tovar & de Haan, Jakob, 2025. "The impact of increasing labour market rigidity on employment growth in OECD countries," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 2265-2275.
  • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:2265-2275
    DOI: 10.1016/j.eap.2025.03.010
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    More about this item

    Keywords

    Labour market counter-reforms; Employment; Local projections; Nonlinearities;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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