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Better protected, better paid: Evidence on how employment protection affects wages

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  • van der Wiel, Karen

Abstract

This paper empirically establishes the effect of the employer's term of notice on the wage level of employees. The term of notice is defined as the period an employer has to notify workers in advance of their upcoming dismissal. The wages paid during this period are an important element of firing costs and hence employment protection. To find a causal effect, I exploit the exogenous change in the term of notice that resulted from the introduction of a new Dutch law in 1999. Strong evidence is found that a longer 'dormant' term of notice leads to higher wages. In my sample, an additional month of notice increases wages by three percent, ceteris paribus.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 16-26

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Handle: RePEc:eee:labeco:v:17:y:2010:i:1:p:16-26

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Employment protection Term of notice Wages;

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References

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  1. Pedro S. Martins, 2008. "Dismissals for cause: The difference that just eight paragraphs can make," Working Papers 24, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
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  8. Kugler, Adriana & Pica, Giovanni, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," IZA Discussion Papers 1743, Institute for the Study of Labor (IZA).
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  10. Leonardi, Marco & Pica, Giovanni, 2010. "Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation," IZA Discussion Papers 5335, Institute for the Study of Labor (IZA).
  11. Autor, David & Kerr, William & Kugler, Adriana, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," IZA Discussion Papers 2571, Institute for the Study of Labor (IZA).
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  13. Leonardi, Marco & Pica, Giovanni, 2007. "Employment Protection Legislation and Wages," IZA Discussion Papers 2680, Institute for the Study of Labor (IZA).
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  16. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  17. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  18. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  19. Giuseppe Bertola & Richard Rogerson, 1996. "Institutions and Labor Reallocation," NBER Working Papers 5828, National Bureau of Economic Research, Inc.
  20. Adriana Kugler adkugler@uh.edu & Giovanni Pica, 2005. "The Effects of Employment Protection on the Italian Labour Market," CSEF Working Papers 135, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  21. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
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Citations

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Cited by:
  1. Marco Leonardi & Giovanni Pica, 2010. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," CSEF Working Papers 265, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 13 May 2012.
  2. Bosio, Giulio, 2009. "Temporary employment and wage gap with permanent jobs: evidence from quantile regression," MPRA Paper 16055, University Library of Munich, Germany.
  3. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute for the Study of Labor (IZA).
  4. Marco Leonardi & Giovanni Pica, 2007. "Employment Protection Legislation and Wages," CSEF Working Papers 175, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. Cervini-Plá, María & Ramos, Xavi & Silva, José I., 2010. "Wage Effects of Non-Wage Labour Costs," IZA Discussion Papers 4882, Institute for the Study of Labor (IZA).
  6. Alessio J. G. Brown & Dennis Snower, 2009. "Incentives and Complementarities of Flexicurity," Kiel Working Papers 1526, Kiel Institute for the World Economy.
  7. Wiel, K.M. van der, 2009. "Essays on Expectations, Power and Social Security," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3710369, Tilburg University.

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