Globalization and Protection of Employment

Abstract:
Unionists and politicians frequently claim that globalization lowers employment protection of workers. This paper tests this hypothesis in a panel of 28 OECD countries from 1985 to 2003, differentiating between three dimensions of globalization and two labor market segments. While overall globalization is shown to loosen protection of the regularly employed, it increases regulation in the segment of limited-term contracts. We find economic and political globalization to drive deregulation for the regularly employed, while political and social integration appear responsible for the better protection of workers in atypical employment, outweighing the negative effect of economic integration. We offer political economy arguments as explanations for these differential effects on labor market legislation.