The effects of employment protection: Learning from variable enforcement

Abstract

Employment protection legislations (EPL) are not enforced uniformly across the board. There are a number of exemptions to the coverage of these provisions:¯rms below a given threshold scale and workers with temporary contracts are not subject to the most restrictive provisions. This within country variation in enforcement allows to make inferences on the impact of EPL which go beyond the usual crosscountry approach. In this paper we develop a simple model which explains why these exemptions are in place to start with. Then we empirically assess the e®ects of EPL on dismissal probabilities, based on a double-di®erence approach. Our results are in line with the predictions of the theoretical model. Workers in¯rms exempted from EPL are more likely to be laid-o®. We do not observe this e®ect in the case of temporary workers.

Quit behavior and the role of job protection

“…Haltiwanger et al, 2006;Messina and Vallanti, 2007;Micco and Pages, 2006). Some studies find similar negative effects for labor turnover (Kugler and Pica, 2008;Boeri and Jimeno, 2005), though this finding is not robust in all countries (Bauer et al, 2007). Alternatively, we can expect to find positive effects of employment protection on labor mobility if firms try to circumvent strict dismissal regulations by changing to more flexible contracts (Shivardi and Torrini, 2008;Kahn, 2010).…”

Employment Protection Legislation, Multinational Firms, and Innovation

“…2 See Shapiro and Stiglitz (1984) for the efficiency wage set-up and Boeri and Jimeno (2005) for an application to EPL. Although not its central point, workers invest more in general training in the presence of search frictions in the labour market when they are less likely to be fired by their present employer in Acemoglu (1997).…”

Severance Pay Programs around the World: History, Rationale, Status, and Reforms

“…Among recent studies based on micro data, Autor et al (2007) show that the adoption of wrongful-discharge protections by state courts in the United States had a negative effect on job flows and firm entry. Similarly, Boeri and Jimeno (2005) and Kugler and Pica (2008) confirm negative effects of an increase in dismissal costs on job turnover in Italian firms. Kugler (1999Kugler ( , 2004 and Kugler et al (2003) find that reduction in dismissal costs increased accessions as well as separations of workers in Colombia and Spain, respectively.…”

“…To the extent severance pay increases youth unemployment, this has additional negative consequences in terms of the persistence of unemployment and reduced future earnings capacity. Kugler and Pica (2008) and Boeri and Jimeno (2005), on the contrary, ascertain small or no effect of an increase in dismissal cost for Italian firms with fewer than 15 employees on overall employment or employment growth, whereas Schivardi and Torrini (2008) find only modest effects of stricter employment protection on firm growth near the threshold of 15 workers. Studies also show that severance pay contributes to part-time employment and self-employment.…”