The Economic Effects of Employment Protection: Evidence from International Industry-Level Data

40 Pages Posted: 25 Apr 2011

See all articles by Carmen Pages

Carmen Pages

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

Alejandro Micco

University of Chile

Multiple version iconThere are 2 versions of this paper

Date Written: January 2008

Abstract

This paper examines the economic effects of employment protection legislation in a sample of developed and developing countries. Implementing a difference-in-differences test lessens the potentially severe endogeneity and omitted variable problems associated with cross-country regressions. This test is based on the hypothesis that employment protection regulations are more binding in sectors of activity exposed to higher volatility in demand or supply shocks. The analysis indicates that more stringent legislation slows down job turnover by a significant amount, and that this effect is more pronounced in sectors that are intrinsically more volatile. The paper also finds that employment and value added decline in the most affected sectors, and employment and output effects are driven by a decline in the net entry of firms. In contrast, average employment per plant is not significantly affected.

Suggested Citation

Pages-Serra, Carmen and Micco, Alejandro, The Economic Effects of Employment Protection: Evidence from International Industry-Level Data (January 2008). IDB Working Paper No. 495. Available at SSRN: https://ssrn.com/abstract=1820068 or http://dx.doi.org/10.2139/ssrn.1820068

Carmen Pages-Serra (Contact Author)

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

Alejandro Micco

University of Chile ( email )

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

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