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Employment protection and productivity: evidence from firm-level panel data in Japan

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  • H. Okudaira
  • M. Takizawa
  • K. Tsuru

Abstract

Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms’ production decisions or workers’ commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms’ total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs.

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File URL: http://hdl.handle.net/10.1080/00036846.2012.654913
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 15 (May)
Pages: 2091-2105

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Handle: RePEc:taf:applec:45:y:2013:i:15:p:2091-2105

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  1. Ogawa, K & Suzuki, K, 1997. "Uncertainty and Investment : Some Evidence from the Panel Data of Japanese Manufacturing Firms," ISER Discussion Paper 0436, Institute of Social and Economic Research, Osaka University.
  2. Messina, Julián & Vallanti, Giovanna, 2006. "Job flow dynamics and firing restrictions: evidence from Europe," Working Paper Series 0602, European Central Bank.
  3. Vivek Ghosal & Prakash Loungani, 1995. "Product market competition and the impact of price uncertainty on investment: some evidence from U.S. manufacturing industries," International Finance Discussion Papers 517, Board of Governors of the Federal Reserve System (U.S.).
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