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Employment protection legislation matters for the Phillips Curve

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  • Siena, Daniele
  • Zago, Riccardo

Abstract

Liberal reforms of employment protection legislation (EPL) aim at fostering the flexibility, dynamism and fluidity of the labor market without increasing unemployment. A New Keynesian model with search-and-matching frictions implies that such type of reforms have also a direct impact on the structural relationship between prices and unemployment, i.e. the Phillips Curve (PC). We assess empirically the existence of this channel considering 19 episodes of EPL reforms across 13 countries. Consistently with the theory, countries that experienced an employment protection liberalization witnessed a flattening of the PC just after the reform.

Suggested Citation

  • Siena, Daniele & Zago, Riccardo, 2022. "Employment protection legislation matters for the Phillips Curve," Economics Letters, Elsevier, vol. 220(C).
    • Handle: RePEc:eee:ecolet:v:220:y:2022:i:c:s0165176522003573
    DOI: 10.1016/j.econlet.2022.110883
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    References listed on IDEAS

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    More about this item

    Keywords

    Employment protection; Phillips Curve; Labor market fluidity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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