Examination of the relationship between employment protection regulation and unemployment: Panel case study of countries of the COMESA

Abstract

This paper aims to empirically test the impact of the relationship between the rules concerning the protection of employees and the unemployment rate. The aim is to answer the question of whether there is a positive or negative relationship between stricter employment protection regulation and unemployment, and whether it is statistically significant. The methodology used is from the panel data analysis of the multifactorial regression model with fixed and random effects and the generalized method of moments (GMM) model. Fella (2000) and the Organisation for Economic Co-operation and Development (OECD, 2004), find that any tightening of regulations regarding the protection against individual dismissals of 1 percent, measured through the indicator of the stringency of employment protection — individual dismissals leads to a decrease of unemployment of 1.774 percent. Fujita and Nakajima (2016) point out that the employment rate is procyclical, while the unemployment rate is countercyclical. The research was conducted using secondary data with panel data analysis for 24 countries, 19 of which are current members of the Common Market for Eastern and Southern Africa (COMESA). The results of the endogeneity test show that there are no endogeneity variables (p-values: 0.372, 0.434, and 0.110, retrospectively for the variables scd, sid, and tc).