Cross Country Differences in Job Reallocation: The Role of Industry, Firm Size and Regulations

European Bank for Reconstruction and Development Working Paper No. 116, July 2010

32 Pages Posted: 10 Dec 2012

See all articles by John Haltiwanger

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Helena Schweiger

European Bank for Reconstruction and Development (EBRD) - Office of the Chief Economist

Date Written: July 5, 2010

Abstract

Somewhat surprisingly, cross-country empirical evidence (at least in the cross section) does not seem to support the predictions of standard models that economies with stricter regulations on hiring and firing should have a lower pace of job reallocation. One problem in exploring these issues empirically has been the difficulty of comparing countries on the basis of harmonised measures of job reallocation. A related problem is that there may be unobserved measurement or other factors accounting for differences in job reallocation across countries. This paper overcomes these challenges by using harmonised measures of job creation and destruction in a sample of 16 developed and emerging economies (including four transition economies), exploiting the country, industry and firm size dimensions. The analysis of variance in the paper shows that firm size effects are a dominant factor in accounting for the variation in the pace of job reallocation across country, industry and size cells. However, even after controlling for industry and size effects there remain significant differences in job flows across countries that could reflect differences in labour market regulations. We use the harmonised data to explore this hypothesis with a difference-in-difference approach. We find strong and robust evidence that stringent hiring and firing regulations tend to reduce the pace of job reallocation.

Keywords: gross job flows, firm dynamics, firm size, product and labour market regulations

JEL Classification: J23, J53, K31

Suggested Citation

Haltiwanger, John C. and Scarpetta, Stefano and Schweiger, Helena, Cross Country Differences in Job Reallocation: The Role of Industry, Firm Size and Regulations (July 5, 2010). European Bank for Reconstruction and Development Working Paper No. 116, July 2010. Available at SSRN: https://ssrn.com/abstract=2187538 or http://dx.doi.org/10.2139/ssrn.2187538

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

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

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs ( email )

2 rue Andre Pascal
Paris Cedex 16, 75016
France
+33 1 45 24 19 88 (Phone)
+33 1 45 24 18 59 (Fax)

IZA Institute of Labor Economics

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

Helena Schweiger (Contact Author)

European Bank for Reconstruction and Development (EBRD) - Office of the Chief Economist ( email )

One Exchange Square
London EC2A 2JN
United Kingdom

HOME PAGE: http://www.helenasch.net

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