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

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Carmen Pagés-Serra ()
Alejandro Micco

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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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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number 4496.

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Date of creation: Jan 2008
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Handle: RePEc:idb:wpaper:4496

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  6. 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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  13. 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)
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  14. 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)
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  15. 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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  18. 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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  19. Pierre-Olivier Gourinchas, 1998. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Working Papers 6864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. 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.
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  22. Alejandro Micco - Carmen Pages, 2004. "Employment Protection and Gross Job Flows1," Econometric Society 2004 Latin American Meetings 295, Econometric Society. [Downloadable!]
  23. Daron Acemoglu & Joshua D. Angrist, 2001. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 915-957, October. [Downloadable!] (restricted)
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  24. 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)
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  26. 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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  27. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  28. Ricardo J. Caballero & Kevin N. Cowan & Eduardo M.R.A. Engel & Alejandro Micco, 2004. "Effective Labor Regulation and Microeconomic Flexibility," NBER Working Papers 10744, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  29. 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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  30. 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)
  31. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  32. Marcela Meléndez & Katja Seim & Pablo Medina, 2003. "Productivity Dynamics Of The Colombian Manufacturing Sector," DOCUMENTOS CEDE 003389, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
  33. Tito Boeri & Juan F. Jimeno, . "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 2003-12, FEDEA. [Downloadable!]
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  34. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February. [Downloadable!] (restricted)
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  35. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, vol. 80(3), pages 677-722, June. [Downloadable!] (restricted)
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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. Bassanini, Andrea & Nunziata, Luca & Venn, Danielle, 2008. "Job Protection Legislation and Productivity Growth in OECD Countries," IZA Discussion Papers 3555, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Working Papers 07-03, Utrecht School of Economics. [Downloadable!]
    Other versions:
  3. Djankov, Simeon & Ramalho, Rita, 2008. "Employment Laws in Developing Countries," CEPR Discussion Papers 7097, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. 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:
  5. Kaplan, David S., 2008. "Job creation and labor reform in Latin America," Policy Research Working Paper Series 4708, The World Bank. [Downloadable!]
    Other versions:
  6. Andrea Bassanini & Danielle Venn, 2008. "The Impact of Labour Market Policies on Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 17, pages 3-15, Fall. [Downloadable!]
  7. 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)
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  8. Fox, Louise & Oviedo, Ana Maria, 2008. "Institutions and labor market outcomes in Sub-Saharan Africa," Policy Research Working Paper Series 4721, The World Bank. [Downloadable!]
  9. 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!]
  10. Gindling, T.H. & Terrell, Katherine, 2008. "Minimum Wages, Globalization, and Poverty in Honduras," Working Papers RP2008/23, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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  11. 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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