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English Summaries Työpoliittinen aikakauskirja 4/2018
English summaries
The economic effects of employment protection
Merja Kauhanen, Ph.D., Research coordinator, Labour Institute for Economic Research, Helsinki.
Antti Kauhanen, Ph.D., Chief research scientist, The Research Institute of the Finnish Economy, Helsinki
In April 2018 Juha Sipilä’s Government decided to prepare two amendments to the Employment Contracts Act. The first planned
reform was related to easing the use of fixed- term employment by allowing an employer to make, without restrictions, fixed-term employ- ment contracts with a young person under 30 years of age who has been an unemployed job seeker for at least three months. The other planned reform was to ease the criteria for indi- vidual dismissal in firms employing 20 people or less. Of these two only the dismissal reform was forwarded to the law drafting process.
This article is to large extent based on our expert opinion reports we wrote to the Ministry of Economic Affairs and Employment related to the ‘boundary conditions’ of the planned dismissal reform. The article summarizes the main findings from the theoretical and empir- ical literature on the various effects of employ- ment protection on employment outcomes,
which we presented in our expert opinion reports appended with the brief summaries of the effects of employment protection on wages and labour productivity.
On the basis of the theoretical literature the direction of the effects of employment protec- tion on aggregate employment and unemploy- ment, wages and productivity are ambiguous. The same ambiguity is also confirmed by the empirical literature as regards the effects of employment protection on aggregate employ- ment and unemployment, wages and labour productivity. In line with theory the empiri- cal literature has also consistently found that stricter employment protection reduces both recruitments and dismissals.
Although the results on the impact of employ- ment protection on labour productivity from different empirical studies are not clearcut, the majority of empirical studies have found nega- tive impact of stricter employment protection regulation on total factor productivity.
New job creation increased in 2017
Heikki Räisänen, Dr. Pol. Sc., Adjunct Professor, Research Director, Ministry
of Economic Affairs and Employment; Tallamaria Maunu, Lic. Sc. (Econ.), Senior Specialist, Ministry of Economic Affairs and Employment
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