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Comment on: OECD Employment Outlook 2004. Giuseppe Dari-Mattiacci. Measuring Law December 15 th , 2006. Focus of this comment. From the OECD Employment Outlook: Under some conditions EPL can be welfare enhancing
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Comment on: OECD Employment Outlook 2004 Giuseppe Dari-Mattiacci Measuring Law December 15th, 2006
Focus of this comment • From the OECD Employment Outlook: • Under some conditions EPL can be welfare enhancing • EPL affects the balance between rigidity and flexibility and between long and short term contracts • The effects of EPL are context dependent
Remarks • Importance of the informal sector and of other regulations • Emphasize the contractual nature of employment
Importance of the informal sector and of other regulations Idea: Stringent EPL only implies stronger protection for those to whom EPL is applicable This pool can shrink as a result of reforms as employee move to the informal sector or employers find it convenient to frame the contract differently
The employee … and its alternatives: • Independent contractor • Trainee OECD • Illegal employee • Legal employee with illegal contract
The employee • Interaction with the notion of employment (who is to be considered in the labor force?) • More formal protection might result in less actual protection of employees • Definition of costs and benefits of EPL
The employer • Termination of business as a way to terminate employment • Protection outside EPL
Emphasize the contractual nature of employment Idea: The employment contract is a contract Both parties can directly benefit from improved commitment devices Emphasize the default of mandatory nature of EPL (relates to earlier point)
Direction of causation • EPL could be the effect rather that the cause of labor market structure and performance • Employees in a labor market with high demand require different ways of protection that in a market with low demand • Who is pushing for labor reforms?
EPL as a bonding mechanism • The benefit of EPL might accrue to both parties OECD • The employer can make its commitment not to dismiss credible • Job security can be a substitute for higher pay
EPL as a bonding mechanism • Improving the ability of the employer to commit might enhance contract flexibility while apparently creating labor market rigidity • Employees protection offered by EPL is not always mandatory in practice • It rather alters the menu of contractual choices for employer and employee
Conclusion • Contextualize EPL