Employment Protection: Tough to Scrap or Tough to Get?

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If legislating employment protection is a protracted process subject to time delays, then firms can dismiss workers before an increase in protection is implemented. Heightened risk of dismissal before implementation makes workers in countries with flexible labour markets reluctant to support proposals for more stringent protection. In the model developed in this article, this mechanism provides a novel source of status quo bias which can sustain differences in employment protection across countries. While in previous work status quo bias arises because a constituency effect makes employment protection difficult to deregulate, here the bias arises because protection is difficult to introduce. © 2007 The Author(s). Journal compilation © Royal Economic Society 2007.
Original languageEnglish
Pages (from-to)F386-F415
JournalEconomic Journal
Issue number521
Publication statusPublished - 2007


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