Does Employment Protection Reduce Productivity? Evidence from US States

29 Pages Posted: 27 Jun 2007

See all articles by David H. Autor

David H. Autor

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

William Kerr

Harvard University - Entrepreneurial Management Unit

Adriana D. Kugler

McCourt School of Public Policy ; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; National Bureau of Economic Research (NBER)

Abstract

Theory predicts that mandated employment protection may reduce productivity by distorting production choices. We use the adoption of wrongful-discharge protection by state courts in the US from 1970 to 1999 to evaluate the empirical link between dismissal costs and productivity. Drawing on establishment-level data from the Census Bureau, our estimates suggest that wrongful-discharge protection reduces employment flows and firm entry rates. Moreover, plants engage in capital deepening and experience a decline in total factor productivity, indicative of altered production techniques. Evidence of strong contemporaneous growth in employment, however, leads us to view our findings as suggestive but tentative.

Suggested Citation

Autor, David H. and Kerr, William R. and Kugler, Adriana Debora, Does Employment Protection Reduce Productivity? Evidence from US States. The Economic Journal, Vol. 117, Issue 521, pp. F189-F217, June 2007. Available at SSRN: https://ssrn.com/abstract=996246 or http://dx.doi.org/10.1111/j.1468-0297.2007.02055.x

David H. Autor (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

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Adriana Debora Kugler

McCourt School of Public Policy ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics ( email )

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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