Employment Protection and Gross Job Flows: A Differences-in-Differences Approach

48 Pages Posted: 25 Apr 2011

See all articles by Alejandro Micco

Alejandro Micco

University of Chile

Carmen Pages

Inter-American Development Bank (IADB); IZA Institute of Labor Economics

Date Written: August 2004

Abstract

This paper examines the effect of employment protection regulation on gross job flows in a sample of developed and developing countries. By implementing a differences-in-differences test we lessen the potentially severe endogeneity and omitted variable problems associated with cross-country regressions. This test is based on the hypothesis that job security regulations are more binding in some sectors of economic activity than in others, depending on sector-specific characteristics such as the variance of demand or technological shocks. Unlike most of the existing literature, our analysis indicates that more stringent job security regulations slow down gross job flows, and this tendency is more pronounced in sectors that require higher labor flexibility. These effects occur within the sample of developed and developing countries and are very large in magnitude. Moreover, these effects are robust to changes in regulatory measures, measurement of sector flexibility requirements, control variables and samples.

Suggested Citation

Micco, Alejandro and Pages-Serra, Carmen, Employment Protection and Gross Job Flows: A Differences-in-Differences Approach (August 2004). IDB Working Paper No. 421. Available at SSRN: https://ssrn.com/abstract=1818710 or http://dx.doi.org/10.2139/ssrn.1818710

Alejandro Micco (Contact Author)

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Carmen Pages-Serra

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States
202-623 3110 (Phone)
202-623-2481 (Fax)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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