Working Paper

Labor Market Regulation and the Legal System

Carsten Hefeker, Michael Neugart
CESifo, Munich, 2007

CESifo Working Paper No. 2041

When enacting labor market regulation governments face courts that interpret and implement the legal code. We show that the incentives for governments for labor market reform increase with the uncertainty that is involved in the implementation of legal codes through courts. Given that judges have more discretion in common as opposed to civil law systems more reform activity as a response to crises should be observed in the former system. This finding is backed by evidence from a panel of OECD countries.

CESifo Category
Labour Markets
Keywords: labor market regulation, labor courts, uncertainty, unemployment
JEL Classification: D780,K310