Does protection against dismissal increase the employment threshold?

Labour market institutions are important determinants for the performance of labour markets and for explaining the differences among international unemployment rates. The Ifo Institute, together with Prof. Horst Rottmann, Amberg-Weiden University of Applied Science, examined the effects of dismissal protection laws on the employment threshold (the growth rate of output that must be reached for employment to rise). A comparison of 17 OECD countries showed that stronger job protection increases the employment threshold significantly. In the 1990s the employment threshold in Germany was 2.4%. If British dismissal protection laws had prevailed, a growth rate of 1.2% would have sufficed to increase employment.