The Elusive Effect of Employment Protection on Labor Turnover

Filippo Belloc () and D’Antoni, Massimo
Authors registered in the RePEc Author Service: Massimo D'Antoni

Structural Change and Economic Dynamics, 2020, vol. 54, issue C, 11-25

Abstract: For a large sample of Italian firms, we analyze employment adjustments to external wage shocks under different EPL regimes. The responsiveness of labor quantity to wages is shown to be systematically higher under stricter regulation. We explain this counterintuitive result arguing that the effect of labour regulation is twofold: on the one hand, it increases the cost of dismissals; on the other, along with the greater presence of unions, it reduces the monopsonistic power of employers and induces higher firm-level labor supply elasticity. This is confirmed by the analysis of the effects of a tax induced shift of the labor demand. Hence, although labor demand elasticity is arguably lower for regulated firms, wage shocks may result in larger employment variations. Our results motivate to reconsider labor deregulation as the key for improving employment reallocation.

Keywords: Employment protection legislation; Labor demand elasticity; Monopsony labor market; Labor supply elasticity (search for similar items in EconPapers)
JEL-codes: D22 J23 J58 J63 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:54:y:2020:i:c:p:11-25

DOI: 10.1016/j.strueco.2020.04.001

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