quality:corruption
Controversy

In a 2009 article surveying the academic literature from both U.S. and international sources, J. H. Verkerke explained that "although everyone agrees that raising firing costs must necessarily deter both discharges and new hiring, predictions for all other variables depend heavily on the structure of the model and assumptions about crucial parameters." The detrimental effect of raising firing costs is generally accepted in mainstream economics (particularly neoclassical economics); for example, Tyler Cowen and Alex Tabarrok explain in their economics textbook that employers become more reluctant to hire employees if they are uncertain about their ability to immediately fire them. However, according to contract theory, raising firing costs can sometimes be desirable when there are frictions in the working of markets. For instance, Schmitz (2004) argues that employment protection laws can be welfare-enhancing when principal-agent relationships are plagued by asymmetric information.