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Relaxed Dismissal Protection: Effects on the Hiring and Firing Behaviour of Small Firms

Stefan Bauernschuster

No 2009-015, Jena Economic Research Papers from Friedrich-Schiller-University Jena

Abstract: Small firms are seen as important drivers of dynamics and innovation. They need to be particularly flexible and be able to react quickly to new challenges. This paper uses the latest change in dismissal protection legislation in Germany as a natural experiment and tries to find causal effects on the hiring and firing behaviour of small firms. Using a difference-in-differences approach, I find only small but positive effects on the total number of hirings. However, there are substantial substitution effects from temporary contract hirings to permanent contract hirings. The results remain robust when using count data models and applying fixed effects specifications.

Keywords: Employment Protection; Small Business; Worker Flows (search for similar items in EconPapers)
JEL-codes: J38 K31 M21 (search for similar items in EconPapers)
Date: 2009-02-20
New Economics Papers: this item is included in nep-eec, nep-ent and nep-law
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