Firing Costs and Productivity: Evidence from a Natural Experiment

Klaas Mulier, Mike Mariathasan, Ozan Guler and Andrea Caggese

No 1376, Working Papers from Barcelona School of Economics

Abstract: This paper investigates the effect of firing costs on total factor productivity (TFP) and resource allocation. Exploiting heterogeneous changes in firing costs across employee types in Belgium, we find that increasing firing costs reduce firm-level TFP. Firms facing a net increase in firing costs reduce hiring and firing, increase hours worked per employee, adjust the composition of their workforce away from employee types whose firing costs have increased, and rely more on outsourced employees. Instead, we find no evidence of capital-intensive technology adoption. The decline in TFP is smaller for firms with better access to credit.

Keywords: productivity; misallocation; firing costs; employment protection (search for similar items in EconPapers)
JEL-codes: E22 E23 E24 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-bec, nep-eff and nep-hrm
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Working Paper: Firing costs and productivity: Evidence from a natural experiment (2022)
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