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Setting It Right: Employment Protection, Labour Reallocation and Productivity

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  • Martin, John P.

    ()
    (OECD)

  • Scarpetta, Stefano

    ()
    (OECD)

Abstract

This paper provides a critical review of the recent empirical evidence on the links between regulations affecting the hiring and firing of workers, labour reallocation and productivity growth. It also reviews how workers affected by labour mobility fare and discusses policy options to support them. The upshot is that employment protection has a sizeable effect on labour market flows and these flows, in turn, have significant impacts on productivity growth. At the same time, the evidence also shows that while greater labour market reallocation benefits many workers through higher real wages and better careers, some displaced workers lose out via longer unemployment durations and/or lower real wages in post-displacement jobs. In this context, reforms of employment protection should be considered as part of a comprehensive package that also includes an adequate safety net for the unemployed and effective re-employment services.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Policy Papers with number 27.

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Length: 28 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:iza:izapps:pp27

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Keywords: job and worker flows; employment protection; productivity;

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Citations

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Cited by:
  1. Cappellari, Lorenzo & Dell'Aringa, Carlo & Leonardi, Marco, 2012. "Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms," IZA Discussion Papers 6526, Institute for the Study of Labor (IZA).
  2. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
  3. Alberto Chilosi, 2014. "Long-Term Unemployment in the Varieties of Capitalism," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 17(1), pages 69-78, May.
  4. Jo Ritzen & Klaus Zimmermann, 2014. "A vibrant European labor market with full employment," IZA Journal of European Labor Studies, Springer, vol. 3(1), pages 1-24, December.
  5. Hijzen, Alexander & Mondauto, Leopoldo & Scarpetta, Stefano, 2013. "The Perverse Effects of Job-Security Provisions on Job Security in Italy: Results from a Regression Discontinuity Design," IZA Discussion Papers 7594, Institute for the Study of Labor (IZA).
  6. Julia Jauer & Thomas Liebig & John P. Martin & Patrick A. Puhani, 2014. "Migration as an adjustment mechanism in the crisis? A comparison of Europe and the United States," CReAM Discussion Paper Series 1410, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  7. Karl Aiginger & Thomas Horvath & Helmut Mahringer, . "Why Labour Market Response Differed in the Great Recession: The Impact of Institutions and Policy," WIFO Working Papers 396, WIFO.
  8. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute for the Study of Labor (IZA).
  9. Dan Andrews & Chiara Criscuolo, 2013. "Knowledge-Based Capital, Innovation and Resource Allocation," OECD Economics Department Working Papers 1046, OECD Publishing.
  10. Sander Wennekers & al et, 2014. "Entrepreneurship in the Netherlands - The Top sectors," Scales Research Reports A201417, EIM Business and Policy Research.
  11. Richard Fabling & David C. Maré, 2012. "Cyclical Labour Market Adjustment in New Zealand: The Response of Firms to the Global Financial Crisis and its Implications for Workers," Working Papers 12_04, Motu Economic and Public Policy Research.
  12. Lopez-Garcia, Paloma & di Mauro, Filippo & Benatti, Nicola & Angeloni, Chiara & Altomonte, Carlo & Bugamelli, Matteo & D’Aurizio, Leandro & Navaretti, Giorgio Barba & Forlani, Emanuele & Rossetti, S, 2014. "Micro-based evidence of EU competitiveness: the CompNet database," Working Paper Series 1634, European Central Bank.
  13. Liina Malk, 2013. "Relaxation of employment protection and its effects on labour reallocation," Bank of Estonia Working Papers wp2013-4, Bank of Estonia, revised 04 Jun 2013.

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