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<p>Does stronger employment protection reduce income inequality? Answering this question is empirically challenging because labor market institutions and inequality are both highly persistent over time and likely jointly determined. This paper addresses these challenges by developing an econometric framework for recovering long-run institutional relationships, combining a two-stage dynamic panel approach with a copula-based correction for endogenous regressors. We apply this framework to a dynamic panel of 32 OECD countries over the period 1985–2019. Our results suggest that stronger employment protection legislation is associated with lower income inequality, both before and after redistribution, with particularly robust equalizing effects stemming from stronger protection of regular contracts. Beyond the EPL application, the paper contributes methodologically by offering an empirical strategy for estimating the effects of persistent institutional variables in dynamic panel settings.</p>

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From protection to equity: investigating EPL’s role in income distribution

  • 期刊论文

  • 发表日期：

    2026年7月21日

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  • Filippas Beteniotis,
  • Dimitris Christopoulos

摘要

Does stronger employment protection reduce income inequality? Answering this question is empirically challenging because labor market institutions and inequality are both highly persistent over time and likely jointly determined. This paper addresses these challenges by developing an econometric framework for recovering long-run institutional relationships, combining a two-stage dynamic panel approach with a copula-based correction for endogenous regressors. We apply this framework to a dynamic panel of 32 OECD countries over the period 1985–2019. Our results suggest that stronger employment protection legislation is associated with lower income inequality, both before and after redistribution, with particularly robust equalizing effects stemming from stronger protection of regular contracts. Beyond the EPL application, the paper contributes methodologically by offering an empirical strategy for estimating the effects of persistent institutional variables in dynamic panel settings.