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Employment Protection: The Case of Limited Enforceability

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  • Florian Baumann

Abstract

This paper shows that the effects of employment protection critically depend on its enforcement. For this purpose, we capture evasion of employment protection via market exit in a setting of monopolistic competition. We find that the number of firms entering the market depends on firing costs only in the case of imperfect enforcement of employment protection. Furthermore, the possibility to circumvent firing restrictions by exiting the market mitigates the adverse efficiency effects of employment protection and can reverse the sign of the change in employment associated with an increase in firing costs.

Suggested Citation

  • Florian Baumann, 2008. "Employment Protection: The Case of Limited Enforceability," CESifo Working Paper Series 2346, CESifo.
    • Handle: RePEc:ces:ceswps:_2346
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2346.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    employment protection; evasion; market entry and exit;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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