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Containing costly job losses

Job losses can prove costly for individuals, as well as to society. Financial distress, for example, can lead to health problems and crime. While policies like unemployment benefits, job-search assistance and skills training can help ease the personal impact of job loss, they can be expensive. Consequently, governments also turn to policies that protect employees from losing their jobs in the first place.

Employment protection legislation therefore aims to reduce the negative effects of job loss on workers and society at large by protecting employment and increasing job stability. But sometimes it can be excessively rigid, discouraging job creation and preventing an efficient allocation of labour. Striking a good balance between flexible labour markets and protecting employees is therefore the trick.

The OECD produces an indicator of the strictness of employment protection of workers with regular contracts against individual dismissal. This takes into account the procedural inconveniences imposed by the legislation, required notice periods and severance pay, as well as difficulty of dismissal. The US and other English-speaking common-law countries such as Canada, New Zealand and the UK appear to have unrestrictive regulations for individual dismissals, as does Hungary. By contrast, France, Germany, the Netherlands and Portugal have regulations for individual dismissals that are far stricter than in the average country, as do China, India, and the Russian Federation.

See the OECD Indicators of Employment Protection

See also www.oecd.org/employment

© OECD Observer No 295 Q2 2013