Measuring the Effects of Employment Protection on Job Flows: Evidence from Seasonal Cycles

Justin Wolfers

No 98, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: Theory implies that employment protection will unambiguously decrease job flows. However, cross-country comparisons of annual rates of job reallocation seem to show that employment protection has no discernible effect on job flows. This paper presents a model that shows that employment protection does not significantly alter a firm’s response to highly persistent shocks – such as those present in annual data. By contrast, quarterly job flows will reflect highly transitory shocks – such as those associated with the seasonal cycle. It is here that employment protection should reduce job flows. Testing this hypothesis requires a consistent set of cross-country set of quarterly job flows. In the absence of such data, a novel approach is used, manipulating available household survey data. Specifically, a measure of job flows caused by the seasonal cycle is constructed. Analyzing these flows across 14 OECD countries, employment protection is shown to have significant and economically meaningful effects on job flows. Indeed, the size of the effect is sufficient to confirm Blanchard and Portugal’s hypothesis that it is employment protection that explains the different pattern of labor turnover between Portugal and the USA.

Keywords: Employment protection; job flows; worker flows; seasonality; firing costs; labor market institutions (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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