Employment Protection and Firm Relocation: Theory and Evidence

40 Pages Posted: 14 May 2018

See all articles by Gerda Dewit

Gerda Dewit

University of Glasgow - Department of Economics

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Yama Temouri

Aston University

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Abstract

We examine the determinants of the decision to relocate activities abroad for firms located in OECD countries. We argue that particular firm-specific features play a crucial role for the link between employment protection and relocation. Stricter employment protection laws over time in the current production location discourage firms' relocation abroad. While larger, more productive firms and firms with higher labour intensities have, ceteris paribus, higher propensities to relocate, they also face higher exit barriers if the country from which they consider relocating has strict employment protection laws. Our predictions are supported empirically, using firm level panel data for 28 OECD countries over the period 1997-2007.

Keywords: employment protection, relocation, multinational enterprises

JEL Classification: F23, L23, J88

Suggested Citation

Dewit, Gerda and Gorg, Holger and Temouri, Yama, Employment Protection and Firm Relocation: Theory and Evidence. IZA Discussion Paper No. 11500, Available at SSRN: https://ssrn.com/abstract=3177375

Gerda Dewit (Contact Author)

University of Glasgow - Department of Economics ( email )

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Glasgow, Scotland G12 8RT
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+141 330 4940 (Fax)

Holger Gorg

University of Kiel ( email )

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D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Yama Temouri

Aston University ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom

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