Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 333: Balancing employment protection and what’s good for the company - Intended and un-intended consequences of a semi-coercive institution

Charlotta Stern () and Linda Weidenstedt ()
Additional contact information
Charlotta Stern: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Linda Weidenstedt: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: Like most developed countries, Sweden has institutionalized employment protection legislation, called LAS. LAS is interesting theoretically because parts of it are semi-coercive. The semi-coerciveness makes it possible for firms and unions under collective agreements to negotiate departures from the law, for instance regarding seniority rules and terminations due to employees' fit and/or misconduct. In this sense, the law is more flexible than the legal text suggests. The present study explores how the semi-coercive institution of employment protection is perceived and implemented by managers of smaller manufacturing companies. The results suggest that managers support the idea of employment protection rules in principle but face a difficult balancing act in dealing with LAS. Thus, the institutional legitimacy of the law is low. LAS ends up producing local cultures of hypocrisy and pretense. The paper gives insights into how institutions aimed at producing good moral behavior sometimes end up producing the opposite.

Keywords: un-intended consequences; institutional semi-coerciveness; employment protection; local knowledge

JEL-codes: D02; J50; Z13

31 pages, May 20, 2020

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