Original scientific paper

Does Rigid Employment Legislation Impede Employment Prospects? Evidence from Slovenia

Polona Domadenik

Abstract

This paper presents a matching model with adverse selection to explain a link between employment legislation and the probability of switching from inactivity or unemployment to employment. In the countries with strict employment protection legislation firms find it more costly to hire a bad worker, so they prefer to hire out of a pool of the employed rather than out of a pool of the unemployed, who are more likely to be “lemons”. Based on Slovene Labour Force Survey data for the 1997-2002 period we find that high dismissal costs created mostly by the adverse selection model and rigid legislation introduce certain distortions on the labor market that are not similar for all groups of potential or current employees. The highest probability of switching from unemployment or inactivity to employment or from one employer to another are detected in the case of prime age population (20-29 years old) while in 2002, the probability of switching increased substantially for individuals with tertiary education. The young who were already married at the time of the survey have a substantially lower probability of improving their labor market status. We can also detect selfdiscrimination of the unemployed receiving unemployment benefits.

Keywords

matching model with adverse selection; labor market; Slovenia

Hrčak ID:

18344

URI

https://hrcak.srce.hr/18344

Publication date:

15.4.2007.

Article data in other languages: croatian

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