Job Protection Legislation and Productivity Growth in OECD Countries

68 Pages Posted: 24 Jun 2008

See all articles by Andrea Bassanini

Andrea Bassanini

Organization for Economic Co-Operation and Development (OECD); Université d' Evry - Centre D'Etudes des Politiques Economiques et de L'Emploi (EPEE)

L. Nunziata

University of Padua - Department of Economics; IZA Institute of Labor Economics

Danielle Venn

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: July 2008

Abstract

This paper examines the impact of employment protection legislation on productivity in the OECD, using annual cross-country aggregate data on the degree of regulations and industry-level data on productivity from 1982 to 2003. We adopt a "difference-in-differences" framework, which exploits likely differences in the productivity effect of dismissal regulations in different industries. Our identifying assumption is that stricter employment protection influences worker or firm behaviour, and thereby productivity, more in industries where the policy is likely to be binding than in other industries. The advantage of this approach is that, in contrast with standard cross-country analysis, we can control for unobserved factors that, on average, are likely to have the same effect on productivity in all industries. Our empirical results suggest that mandatory dismissal regulations have a depressing impact on productivity growth in industries where layoff restrictions are more likely to be binding. We present a large battery of robustness checks, including dealing with endogeneity issues, that suggest that our finding is robust.

Keywords: labour market institutions, EPL, productivity, difference-in-differences

JEL Classification: J08, J23, J24

Suggested Citation

Bassanini, Andrea and Nunziata, Luca and Venn, Danielle, Job Protection Legislation and Productivity Growth in OECD Countries (July 2008). IZA Discussion Paper No. 3555. Available at SSRN: https://ssrn.com/abstract=1150744 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Andrea Bassanini (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
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+33 1 45 24 90 32 (Phone)
+33 1 45 24 18 59 (Fax)

HOME PAGE: http://www.freeyellow.com/members7/bassax/

Université d' Evry - Centre D'Etudes des Politiques Economiques et de L'Emploi (EPEE)

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

Luca Nunziata

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Danielle Venn

affiliation not provided to SSRN ( email )

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