The Labor Market Regulation

The Labor Market Regulation

Samir Amine (Université du Québec en Outaouais, Canada)
DOI: 10.4018/978-1-5225-2008-5.ch004
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Abstract

This article aims to provide an analytical and critical reading of the state of knowledge on legislation relating to employment protection (EPL) and its impacts on unemployment, jobs creation, productivity and more generally efficiency of the labor market. We show that the construction of indicators of EPL adopted by the OECD is incomplete and does not take into account local specificities of each labor market. We also show that the dominant idea among liberals that any regulations impeding freedom of the labor market generates unemployment and loss of effectiveness is not so obvious to verify empirically and can even be contradicted. In this analysis, we rely on a critical review of theoretical and empirical studies which have examined the effects of EPL. We also discuss some alternatives such as bonus-malus system or the single contract that have been put forward to address the limitations of a relatively strict EPL.
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Introduction

Persistent unemployment and rising wage differences at the expense of low-skilled workers characterize the labor market in most Western countries, particularly those in Europe. These, with the exception of England, are deemed to be rigid in terms of public policies considered generous for workers and binding for firms.

Moreover, since the last financial crisis in 2008, countries such as France, noted the difficulty of their institutions to quickly adapt to changes caused by the economic situation. In this sense, some studies have pointed out that a dual labor market, where the insiders are protected from much larger job than outsiders would generate negative externalities on job creation (Kirat, 2006). Thus, under the recommendations of the Organisation for Economic Co-operation and Development (OECD), more rigid economies have started a process of reforms aimed at increasing the flexibility of the labor market and reducing persistent inequalities, so questioning the rigid nature of the employment protection legislation (EPL).

This article aims to provide an analytical and critical reading of the state of knowledge on legislation relating to employment protection (EPL) and its impacts on unemployment, jobs creation, productivity and more generally efficiency of the labor market. We show that the construction of indicators of EPL adopted by the OECD is incomplete and does not take into account local specificities of each labor market. We also show that the dominant idea among liberals that any regulations impeding freedom of the labor market generates unemployment and loss of effectiveness is not so obvious to verify empirically and can even be contradicted. In this analysis, we rely on a critical review of theoretical and empirical studies which have examined the effects of EPL. We also discuss some alternatives such as bonus-malus system or the single contract that have been put forward to address the limitations of a relatively strict EPL.

Key Terms in this Chapter

Bonus-Malus System: Bonus-malus system is based on the rule of polluter-pays that companies must contribute to the Unemployment-Insurance according to their history of layoffs for economic reasons.

Collective Dismissals Obligations: All elements related to the definition of collective redundancy, the obligations additional notifications to individual dismissals and to the specific costs for the employer for this type of dismissal.

Single Employment Contract: Single employment contract is intended to replace the permanent and fixed-term contracts into one single contract.

Individual Dismissals Obligations: All elements related to the definition of individual redundancy, the notifications and to the specific costs for the employer.

Temporary Workers Protection: Estimates the maximum number of successive fixed-term contracts that can make a firm and the types of jobs that temporary contracts are allowed.

Regular Workers Protection: Regular workers protection includes procedural constraints, notice period, indemnity for the individual dismissals without fault, and difficulty dismissing.

Employment Protection Legislation: Employment protection legislation covers all legislative provisions that impose costs on employers when they wish to make labor adjustments.

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