Heterogeneous Firing Costs, Worker Types, and Productivity: Evidence from a Natural Experiment 

83 Pages Posted: 13 Dec 2022 Last revised: 9 Sep 2023

See all articles by Andrea Caggese

Andrea Caggese

Universitat Pompeu Fabra - Department of Economics and Business (DEB)

Ozan Güler

Universitat Pompeu Fabra - Department of Economics and Business

Mike Mariathasan

KU Leuven- Faculty of Economics & Business

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration

Date Written: November 11, 2022

Abstract

We investigate the effect of firing costs on total factor productivity (TFP) in a setting in which firing costs change simultaneously for the entire firm-size distribution, but heterogeneously across workers. We show formally and empirically that the estimated effects on TFP are biased when the production function fails to account for heterogeneously affected worker types. Our bias-corrected results strengthen existing evidence that firing costs negatively affect TFP and corroborate evidence on hiring and firing freezes. They also offer novel evidence on how firing costs affect workforce composition and utilization. Instead, we observe no capital-intensive technology adoption or human capital investments.

Keywords: firing costs, employment protection, productivity, misallocation

JEL Classification: D24, D25, J63, J65

Suggested Citation

Caggese, Andrea and Güler, Ozan and Mariathasan, Mike and Mulier, Klaas, Heterogeneous Firing Costs, Worker Types, and Productivity: Evidence from a Natural Experiment  (November 11, 2022). Available at SSRN: https://ssrn.com/abstract=4283782 or http://dx.doi.org/10.2139/ssrn.4283782

Andrea Caggese (Contact Author)

Universitat Pompeu Fabra - Department of Economics and Business (DEB) ( email )

Barcelona, 08005
Spain

Ozan Güler

Universitat Pompeu Fabra - Department of Economics and Business ( email )

Barcelona
Spain

Mike Mariathasan

KU Leuven- Faculty of Economics & Business ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

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