Paper #346

Title:

Assesing the political viability of labour market reform: The case of employment protection

Author:

Gilles Saint Paul

Date:

December 1998

Abstract:

We analyze the political support for employment protection legislation. Unlike my previous work on the same topic, this paper pays a lot of attention to the role of obsolescence in the growth process. In voting in favour of employment protection, incumbent employees trade off lower living standards (because employment protection maintains workers in less productive activities) against longer job duration. The support for employment protection will then depend on the value of the latter relative to the cost of the former. We highlight two key deeterminants of this trade-off: first, the workers' bargaining power, second, the economy's growth rate-more precisely its rate of creative destruction.

Keywords:

Vintage capital, obsolescence, political economy, firing costs, creative destruction

JEL codes:

E6, E24, J3, J6

Area of Research:

Macroeconomics and International Economics

Published in:

Federal Reserve Bank of St. Louis, issue May 1999, pages 73-87

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