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Threshold Effects of Dismissal Protection Legislation in Germany

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  • Verick, Sher

    ()
    (ILO International Labour Organization)

Abstract

In this paper we use a reform in the applicability of the Protection Against Dismissal Act or Kündigungsschutzgesetz in Germany to identify employment effects of the legislation for small establishments. Using a panel of establishments for the period 1997-2001, we find some evidence that a tightening of the threshold resulted in a higher probability of persistence and a lower probability of growth for the units in the treatment group during the post-reform years. When using the establishment size as according to the legislation, the effects were the strongest for establishments which were further away from the threshold. This result could reflect the presence of other institutional barriers or adjustment costs than those imposed by the Act. Alternatively, small establishments are unlikely to have perfect information regarding the applicability of the legislation. This is somewhat supported by the results when taking all employees as the measure for the establishment size. However, there is also some evidence that these results are being driven by other factors than the reform of the legislation.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 991.

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Length: 45 pages
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:iza:izadps:dp991

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Related research

Keywords: dismissal protection legislation; difference-in-differences; labour demand;

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References

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  1. Boockmann, Bernhard & Hagen, Tobias, 2001. "The use of flexible working contracts in West Germany: evidence from an establishment panel," ZEW Discussion Papers 01-33, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Katharine G. Abraham & Susan N. Houseman, 1994. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 59-94 National Bureau of Economic Research, Inc.
  3. Bertola, Giuseppe, 1991. "Labour Turnover Costs and Average Labour Demand," CEPR Discussion Papers 601, C.E.P.R. Discussion Papers.
  4. Addison, John T. & Teixeira, Paulino, 2001. "The Economics of Employment Protection," IZA Discussion Papers 381, Institute for the Study of Labor (IZA).
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