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Employment Protection and Productivity: Evidence from firm-level panel data in Japan

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  • OKUDAIRA Hiroko
  • TAKIZAWA Miho
  • TSURU Kotaro

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 of the labour market, by affecting firms' production decisions or workers' commitment levels. This paper 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 judgments 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.

Suggested Citation

  • OKUDAIRA Hiroko & TAKIZAWA Miho & TSURU Kotaro, 2011. "Employment Protection and Productivity: Evidence from firm-level panel data in Japan," Discussion papers 11078, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:11078
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    References listed on IDEAS

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    1. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1, May.
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    3. Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 217-228, June.
    4. Heckman, James J. & Pages, Carmen (ed.), 2004. "Law and Employment," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226322827, December.
    5. James J. Heckman & Carmen Pagés, 2004. "Introduction to "Law and Employment: Lessons from Latin American and the Caribbean"," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 1-108, National Bureau of Economic Research, Inc.
    6. Julián Messina & Giovanna Vallanti, 2007. "Job Flow Dynamics and Firing Restrictions: Evidence from Europe," Economic Journal, Royal Economic Society, vol. 117(521), pages 279-301, June.
    7. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    8. Hiroko Okudaira, 2008. "The Economic Costs of Court Decisions Concerning Dismissals in Japan: Identification by Judge Transfers," Discussion Papers in Economics and Business 08-08, Osaka University, Graduate School of Economics.
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    Cited by:

    1. Francois J. Stofberg & Jan H. van Heerden & Heinrich R. Bohlmann, 2020. "A Fiscus for Better Economic and Social Development in South Africa," Working Papers 202072, University of Pretoria, Department of Economics.
    2. Daniel Schwab, 2019. "Labor protection laws and the drain on productivity: Evidence from India," Working Papers 1906, College of the Holy Cross, Department of Economics.
    3. Bjuggren, Carl Magnus, 2018. "Employment protection and labor productivity," Journal of Public Economics, Elsevier, vol. 157(C), pages 138-157.
    4. Daniel Schwab, 2016. "Employment Protection and the Labor Informality of the Youth: Evidence from India," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-280, Boston University - Department of Economics.
    5. Alpysbayeva, Dinara & Vanormelingen, Stijn, 2022. "Labor market rigidities and misallocation: Evidence from a natural experiment," Labour Economics, Elsevier, vol. 78(C).
    6. Andrew E. Clark & Akiko Kamesaka & Teruyuki Tamura, 2015. "Rising aspirations dampen satisfaction," Education Economics, Taylor & Francis Journals, vol. 23(5), pages 515-531, October.
    7. OKUDAIRA Hiroko & TAKIZAWA Miho & YAMANOUCHI Kenta, 2022. "Does Employee Downsizing Work? Evidence from Product Innovation at Manufacturing Plants," Discussion papers 22015, Research Institute of Economy, Trade and Industry (RIETI).
    8. Daniel Schwab, 2020. "Labor protection laws and the drain on productivity: Evidence from India," Review of Development Economics, Wiley Blackwell, vol. 24(2), pages 383-401, May.
    9. Chaudhary,Sarur & Sharma,Siddharth, 2022. "The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level LaborLaw Amendment," Policy Research Working Paper Series 10039, The World Bank.
    10. Stofberg, F.J. & van Heerden, J.H. & Horridge, M. & Roos, L., 2022. "A fiscus for better economic and social development in South Africa," Conference papers 333392, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Guo, Jing & Tang, Qi & Jin, Guangzhu, 2021. "Labor protection and the efficiency of human capital investment," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 195-207.

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