Abstract
AbstractPolitical parties are likely to hold differing views about employment protection legislation (EPL). While pro-welfare parties could support EPL, pro-market parties might focus on labour market deregulation. In this paper, we investigate empirically whether partisan politics, especially the government participation of Social democrats and Christian democrats, matter for EPL in 21 established OECD countries from 1985 to 2019. We show that during the golden age of the welfare state, the level of EPL was much higher where Social and Christian democrats dominated the government than elsewhere. After the golden age and under conditions of high unemployment, these unconditional effects mostly disappeared. Instead, the level of unemployment conditions partisan differences. Christian democrats liberalize EPL for regular employment significantly less than other parties under high levels of unemployment. In contrast, Social democrats defend high levels of EPL for regular and temporary employment when unemployment is low. Against expectations, they even liberalize employment protection for labour market insiders more than other parties at very high levels of unemployment.
Highlights
Many economists have criticized employment protection legislation (EPL) for being the root cause for the dismal employment performance in continental Europe and Southern Europe
EPL can be regarded as an inexpensive way to provide employment security to potentially vulnerable groups in the labour market – an aspect that might seem attractive for welfare state supporters under conditions of permanent austerity
Our empirical analysis shows that parties have strongly shaped the level of EPL during the golden age
Summary
Many economists have criticized employment protection legislation (EPL) for being the root cause for the dismal employment performance in continental Europe ( since the 1980s) and Southern Europe (especially in the crisis years after 2008) (cf. Siebert, 1997; Blanchard, 2006). EPL can be regarded as an inexpensive way to provide employment security to potentially vulnerable groups in the labour market – an aspect that might seem attractive for welfare state supporters under conditions of permanent austerity. Given these different aspects of EPL, it is plausible that political parties hold differing views about this issue. While pro-welfare parties could support EPL and try to further regulate the labour market or at least defend the current level of regulation, pro-market parties could focus on deregulation in order to incite stronger employment dynamics. Partisan differences could play an important role when it comes to regulating the labour market
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