The Political Economy of Employment Protection

By G. Saint‐Paul. Journal of Political Economy, 2002

271 citations recorded by the source corpus.

This paper develops a model of job creation and job destruction in a growing economy with embodied technical progress, which I use to analyze the political support for employment protection laws such as the ones that are observed in most European countries. In voting in favor of employment protection, incumbent employees trade off lower living standards (because employment protection maintains workers in less productive activities) against longer job duration. The latter is valued because the employed have rents, achieving wages above their alternative value. The gains from, and consequently the political support for, employment protection are larger the lower the rate of creative destruction (i.e., the lower the growth rate) and the larger the employed’s bargaining power. Hence, employment protection is more likely to arise in economies with greater worker bargaining power. Also, workers in older vintages are more in favor of employment protection. Consequently, greater initial protection increases its own support by maintaining a larger fraction of the workforce in older vintages. Finally, if workers can invest ex ante in match‐specific human capital, multiple steady‐state political equilibria may arise, as the outcome of the mutual feedback between employee rents and employment protection.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/87ea73020ef2e2dfef39dd214696026ef263aee9

How researchers see this paper

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In Economics and Econometrics

1. P. Emmenegger
2. Silja Häusermann
3. Hanna Schwander

Citations in the corpus

• Reforming German Labor Market Institutions: A Dual Path to Flexibility (2009, unknown): “As a consequence, workers who already invested in specific skills and benefit from seniority wages form an opposition towards the liberalization of dismissal laws (Saint-Paul 2002).”
• Family Values and the Regulation of Labor (2015, unknown): “…looking at the interaction between labor market institutions and geographical mobility (Hassler et al., 2005).8 More broadly, our paper provides a different, but however complementary analysis to the seminal insider outsider model on employment protection and minimum wage (Saint-Paul 2000, 2002).”
• Does Employment Protection Reduce Productivity? Evidence from US States (2007, unknown): “See Saint-Paul (2002) and Brügemann (2007) for theories on the political economy of employment protection.”
• Barriers to entry: insider/outsider politics and the political determinants of job security regulations (2009, background): “This macro-level relationship has found empirical support in several studies (Botero et al., 2004; Rueda, 2005; Saint-Paul, 1996; 2002; Siegel, 2007).”
• The Employment Effects of Severance Payments with Wage Rigidities (2005, unknown): “Saint-Paul (2002) makes our same assumption on voting and argues that one can think of the equilibrium of this model in terms of the steady-state of a repeated voting equilibrium as the frequency of voting goes to zero.”
• Job Security and Job Protection (2005, unknown): “Saint-Paul (2000, 2002) analyzes political economy models of the choice of labor market institutions, in which EPL and UIB are treated separately.”