The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform

Adriana Kugler

International Tax and Public Finance, 1999, vol. 6, issue 3, 389-410

Abstract: Reductions in firing costs are often advocated as a way of increasing the dynamism of labour markets in both developed and less developed countries. Evidence from Europe and the U.S. on the impact of firing costs has, however, been mixed. Moreover, legislative changes both in Europe and the U.S. have been limited. This paper, instead, examines the impact of the Colombian Labour Market Reform of 1990, which substantially reduced dismissal costs. I estimate the incidence of a reduction in firing costs on worker turnover by exploiting the temporal change in the Colombian labour legislation as well as the variability in coverage between formal and informal sector workers. Using a grouping estimator to control for common aggregate shocks and selection, I find that the exit hazard rates into and out of unemployment increased after the reform by over 1\% for formal workers (covered by the legislation) relative to informal workers (uncovered). The increase of the hazards implies a net decrease in unemployment of a third of a percentage point, which accounts for about one quarter of the fall in unemployment during the period of study. Copyright Kluwer Academic Publishers 1999

Keywords: firing costs; worker turnover; exit hazard rates; grouping estimators; selection biases; labour market reform (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (149)

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1008711819429 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The impact of firing costs on turnover and unemployment: Evidence from the Colombian labour market reform (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:6:y:1999:i:3:p:389-410

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1023/A:1008711819429

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().