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Job Protection Legislation and Productivity Growth in OECD Countries

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Author Info
Bassanini, Andrea () (OECD)
Nunziata, Luca () (University of Padova)
Venn, Danielle (OECD)

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Abstract

This paper examines the impact of employment protection legislation on productivity in the OECD, using annual cross-country aggregate data on the degree of regulations and industry-level data on productivity from 1982 to 2003. We adopt a "difference-in-differences" framework, which exploits likely differences in the productivity effect of dismissal regulations in different industries. Our identifying assumption is that stricter employment protection influences worker or firm behaviour, and thereby productivity, more in industries where the policy is likely to be binding than in other industries. The advantage of this approach is that, in contrast with standard cross-country analysis, we can control for unobserved factors that, on average, are likely to have the same effect on productivity in all industries. Our empirical results suggest that mandatory dismissal regulations have a depressing impact on productivity growth in industries where layoff restrictions are more likely to be binding. We present a large battery of robustness checks, including dealing with endogeneity issues, that suggest that our finding is robust.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3555.

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Date of creation: Jun 2008
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Handle: RePEc:iza:izadps:dp3555

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Related research
Keywords: labour market institutions; EPL; productivity; difference-in-differences;

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Find related papers by JEL classification:
J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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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. Cecilia García-Peñalosa, 2008. "Inequality and growth: Goal conflict or necessary prerequisite?," Working Papers 147, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  2. 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!]
  3. Grassi, Emanuele, 2009. "EPL and Job Contract Conversion Rate: The Italian CFL Case," MPRA Paper 12679, University Library of Munich, Germany. [Downloadable!]
  4. Dolado, Juan J. & Stucchi, Rodolfo, 2008. "Do Temprary Contracts Affect TFP? Evidence from Spanish Manufacturing Firms," CEPR Discussion Papers 7055, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Damiani, Mirella & Pompei, Fabrizio, 2009. "Labour protection and productivity in the European economies: 1995-2005," MPRA Paper 12710, University Library of Munich, Germany. [Downloadable!]
  6. Böckerman, Petri & Ilmakunnas, Pekka & Johansson , Edvard, 2009. "Creative destruction and employee well-being," MPRA Paper 15447, University Library of Munich, Germany. [Downloadable!]
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