Dismissal protection and worker flows in OECD countries: Evidence from cross-country/cross-industry data

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Exploiting a unique dataset including cross-country comparable hiring and separation rates by type of transition for 24 OECD countries, 23 business-sector industries and 13 years, we study the effect of dismissal regulations on different types of gross worker flows, defined as one-year transitions. We use both a difference-in-difference approach -in which the impact of regulations is identified by exploiting likely cross-industry differences in their impact -and standard time-series analysis -in which the effect of regulations is identified through regulatory changes over time. We find that the more restrictive the regulation, the smaller is the rate of within-industry job-to-job transitions, in particular towards permanent jobs. By contrast, we find no significant effect as regards separations involving an industry change or persistent joblessness. The extent of reinstatement in the case of unfair dismissal appears to be the most important regulatory determinant of gross worker flows. We also present a large battery of robustness checks that suggest that our findings are robust.JEL Classification: J23, J24, J62, J63

Firm dynamics and employment protection: Evidence from sectoral data

“…9 For this population of employer enterprises, absolute numbers of births and deaths are provided, and entry and exit rates are easily calculated and directly made available by the OECD. 10 Our regressions include a set of controls that are derived from the same source. In particular, after matching their (slightly) different sectoral classification, from Bassanini and Garnero (2013) we take the countryindustry share of self-employed (Self-employed), share of medium educated (Med.…”

“…For example, in a recent paper on the effect of taxation on firm dynamics, Kneller and Macgowan (2012) use the entire population of active enterprises derived from a previous version of the SBDS database, thus including self-employed. 10 See Eurostat (2007) for more details concerning entry and exit events. 11 These are originally obtained from the Labour Force Surveys micro data and are made directly available on their webpage.…”

“…Bassanini and Garnero (2013) have found that only some of these provisions matter in shaping the effects of EPL on worker flows; therefore it might be worth trying to disentangle the effects of the main provisions behind the OECD EPL indicator on firms' entry and exit rates. We start in columns 1 and 5 of Table 6 by breaking down the OECD EPL index into its individual (EPL Individual) and collective (EPL Collective) regulation components.…”

“…Still, this differential provides us some indication on the direction of the average effect of employment protection legislation, subject to the identification assumption that in less employment reallocation intensive sectors the effect of EPL is of the same sign and smaller than in high employment reallocation intensive industries or, alternatively, zero (Bassanini and Garnero, 2013). In equation (1) country fixed effects should control for any omitted variable at the country level that has the same effect on the entry or exit rate in all industries, such as the quality of institutions, macroeconomic conditions over the period, social norms, etc.…”

Enhancing Economic Flexibility

“…5 Earlier OECD analysis documented that more stringent employment protection for regular contracts substantially reduces jobto-job flows (Bassanini and Garnero, 2013;OECD, 2010a).…”