Job protection, industrial relations and employment

We show that with wage commitment firing costs have a small and ambiguous impact on the level of employment. By contrast, with no-commitment, firing costs reduce the level of employment under very general conditions regarding the curvature of workers utility. Since commitment-like equilibria are more likely in cooperative bargain environ-ments, these results suggest a role in (un)employment regressions for the interaction between the EPL index and a measure of industrial relations quality. Evidence on OECD countries appears to be consistent with the predictions of the model