Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation

Marco Leonardi and Giovanni Pica

No 5335, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Theory predicts that the wage effects of government-mandated severance payments depend on workers' and firms' relative bargaining power. This paper estimates the effect of employment protection legislation (EPL) on workers' individual wages in a quasi-experimental setting, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees and left firing costs unchanged for bigger firms. Accounting for the endogeneity of the treatment status, we find that high-bargaining power workers (stayers, white collar and workers above 45) are almost left unaffected by the increase in EPL, while low-bargaining power workers (movers, blue collar and young workers) suffer a drop both in the wage level and its growth rate.

Keywords: endogeneity of treatment status; policy evaluation; severance payments; costs of unjust dismissals (search for similar items in EconPapers)
JEL-codes: E24 J3 J65 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-11
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published - published in: Economic Journal, 2013, 123, 1236-1278.

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Related works:
Journal Article: Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation (2013)
Working Paper: Who pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation (2012)
Working Paper: Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation (2012)
Working Paper: Employment Protection Legislation and Wages (2007)
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