The Economic Effects of Employment Protection: Evidence from International Industry-Level Data

Alejandro Micco () and Carmen Pages

No 2433, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the economic effects of employment protection legislation in a sample of developed and developing countries. By implementing a difference-in-differences test, we lessen the potentially severe endogeneity and omitted variable problems associated with cross-country regressions. This test is based on the hypothesis that employment protection regulations are more binding in sectors of activity exposed to higher volatility in demand or supply shocks. Our analysis indicates that more stringent legislation slows down job turnover by a significant amount, and that this effect is more pronounced in sectors that are intrinsically more volatile. We also find that employment and value added in the most affected sectors decline. Employment and output effects are driven by a decline in the net entry of firms. In contrast, average employment per plant is not significantly affected.

Keywords: employment protection legislation; employment reallocation; gross job flows; employment; firm entry and exit (search for similar items in EconPapers)
JEL-codes: J23 J32 J63 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2006-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80)

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Related works:
Working Paper: The Economic Effects of Employment Protection: Evidence from International Industry-Level Data (2008)
Working Paper: The Economic Effects of Employment Protection: Evidence from International Industry-Level Data (2007)
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