Does employment protection lead to unemployment? A panel data analysis of OECD countries, 1990-2008

This paper analysed the OECD data on employment protection for 23 OECD countries over the time span 1990-2008 on the basis of alternative dynamic panel data models and panel causality tests and examines the validity of the neo-liberal argument that strictness of employment protection hurts labour through increased long-term and youth unemployment rates. While it finds no empirical basis for this orthodox standpoint it observes that long-term unemployment dampens aggregate production which in turn aggravates unemployment problem.