The Labor Market Regulation

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.