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The Economic Effects of Employment Protection: Evidence from International Industry-Level Data

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Author Info
Carmen Pagés-Serra () (Inter-American Development Bank)
Alejandro Micco (Central Bank of Chile)

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Abstract

This paper examines the economic effects of employment protection legislation in a sample of developed and developing countries. Implementing a difference-in-differences test lessens the potentially severe endogeneity and omitted variable problems associated with cross-country regressions. This test is based on the hypothesis that employment protection regulations are more binding in sectors of activity exposed to higher volatility in demand or supply shocks. The analysis indicates that more stringent legislation slows down job turnover by a significant amount, and that this effect is more pronounced in sectors that are intrinsically more volatile. The paper also finds that employment and value added decline in the most affected sectors, and employment and output effects are driven by a decline in the net entry of firms. In contrast, average employment per plant is not significantly affected.

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Publisher Info
Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number 1077.

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Length: 40 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:idb:wpaper:1077

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Related research
Keywords: Employment Protection Legislation Employment Reallocation Gross Job Flows Employment Firm Entry and Exit

Other versions of this item:

Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Matthew Barnes & Jonathan Haskel, 2002. "Job Creation, Job Destruction and the Contribution of Small Businesses: Evidence for UK Manufacturing," Working Papers 461, Queen Mary, University of London, Department of Economics. [Downloadable!]
  3. Bergoeing, Raphael & Repetto, Andrea & Edwards, Sebastian, 2004. "Productivity dynamics," Journal of Development Economics, Elsevier, vol. 75(2), pages 329-332, December. [Downloadable!] (restricted)
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  5. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February. [Downloadable!] (restricted)
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    Other versions:
  7. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Economics Working Papers 651, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  8. Bauer, Thomas K. & Bender, Stefan & Bonin, Holger, 2004. "Dismissal protection and worker flows in small establishments," IAB Discussion Paper 200401, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
    Other versions:
  9. Marcela Meléndez & Katja Seim & Pablo Medina, 2003. "Productivity Dynamics Of The Colombian Manufacturing Sector," DOCUMENTOS CEDE 003390, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
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  11. Galindo, Arturo & Micco, Alejandro, 2004. "Do state owned banks promote growth? Cross-country evidence for manufacturing industries," Economics Letters, Elsevier, vol. 84(3), pages 371-376, September. [Downloadable!] (restricted)
  12. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Leora Klapper & Luc Laeven & Raghuram Rajan, 2004. "Business Environment and Firm Entry: Evidence from International Data," NBER Working Papers 10380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Ricardo Caballero & Kevin N. Cowan & Eduardo M. R. A. Engel & Alejandro Micco, 2004. "Effective labor regulation and microeconomic flexibility," Working Papers 04-6, Federal Reserve Bank of Boston. [Downloadable!]
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  15. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February. [Downloadable!] (restricted)
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  16. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers 1-88-2, Pennsylvania State - Department of Economics.
    Other versions:
  17. Alex Grey, 1995. "Job Gains and Job Losses: Recent Literature and Trends," OECD Jobs Study Working Papers 1, OECD Directorate for Employment, Labour and Social Affairs. [Downloadable!]
  18. Alejandro Micco - Carmen Pages, 2004. "Employment Protection and Gross Job Flows1," Econometric Society 2004 Latin American Meetings 295, Econometric Society. [Downloadable!]
  19. Olivier Blanchard & Pedro Portugal, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March. [Downloadable!] (restricted)
  20. John Baldwin & Timothy Dunne & John Haltiwanger, 1998. "A Comparison Of Job Creation And Job Destruction In Canada And The United States," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 347-356, August. [Downloadable!] (restricted)
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  21. Stijn Claessens & Luc Laeven, 2003. "Financial Development, Property Rights, and Growth," Journal of Finance, American Finance Association, vol. 58(6), pages 2401-2436, December. [Downloadable!] (restricted)
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  22. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier. [Downloadable!] (restricted)
  23. Marcela Meléndez & Katja Seim & Pablo Medina, 2003. "Productivity Dynamics Of The Colombian Manufacturing Sector," DOCUMENTOS CEDE 003389, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Working Papers 07-03, Utrecht School of Economics. [Downloadable!]
    Other versions:
  2. Philippe Aghion & Thibault Fally & Stefano Scarpetta, 2007. "Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms," IZA Discussion Papers 3237, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2007. "The Economic Consequences of Legal Origins," NBER Working Papers 13608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Boeri, Tito & Macis, Mario, 2008. "Do Unemployment Benefits Promote or Hinder Structural Change?," IZA Discussion Papers 3371, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Simon Commander & Jan Svejnar, 2007. "Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries," IZA Discussion Papers 2637, Institute for the Study of Labor (IZA). [Downloadable!]
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