Evaluation of the Employment Protection Indices in Iran

Evaluating the impact of labor market regulations on various labor market variables requires these regulations to be quantified in the form of indices. This paper calculates two main indices: Job Security (JS) and Employment Protection Legislation (EPL) for regular employment. The evolution of JS shows that after some years of relatively low employment protection (1946-1957), JS increases more than three- fold after the introduction of compulsory severance pay for unjustified dismissals in the Third Labor Law (1959). After the approval of the new labor law in 1991, this index increased nearly two- fold compared to the previous law. The quantity of EPL shows that the current Iranian Labor Law is the strictest law about dismissal protection of regular workers among 28 countries in the sample. In this law, the employers’ power to dismiss is hardly restricted by procedural requirements, direct dismissal costs (notice and severance pay), prevailing standards and penalties for unfair dismissal.