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Assessing the Impact of Labour Market Policies on Productivity: A Difference-in-Differences Approach

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  • Andrea Bassanini
  • Danielle Venn

Abstract

The impact of four labour market policies – employment protection legislation, minimum wages, parental leave and unemployment benefits – on productivity is examined here, using annual cross-country aggregate data on these policies and industry-level data on productivity from 1979 to 2003. We use a "difference-in-differences" framework, which exploits likely differences in the productivity effect of policies in different industries. Our identifying assumption is that a specific policy influences worker or firm behaviour, and thereby productivity, more in industries where the policy in question is likely to be more binding than in other industries. The advantage of this approach is twofold. First, as in standard cross-country analysis, we can exploit the cross-country variation of policies. Second, 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 both policy-binding and non-binding industries. Nous examinons l'impact de quatre politiques du marché du travail – la législation pour la protection de l'emploi, le salaire minimum, le congé parental et l'indemnisation du chômage – sur la productivité. Pour ces politiques, nous utilisons des données annuelles agrégées comparables entre pays ainsi que des données sectorielles sur la productivité de 1979 à 2003 sont utilisées. Nous analysons ces données sur la base d'une méthode de "différence de différences", qui exploite la variabilité des effets des politiques dans les différents secteurs. Notre stratégie d'identification se fonde sur l'hypothèse que les comportements des entreprises ou des salariés, et donc leur productivité, sont davantage influencés par une politique dans les secteurs d'activité où celle-ci est vraisemblablement plus contraignante. L'avantage de cette approche est double. D'une part, à l'instar des analyses agrégées concernant plusieurs pays, nous pouvons exploiter la variabilité des politiques entre les pays. D'autre part, contrairement à ces analyses, nous pouvons contrôler pour des facteurs inobservés qui, en moyenne, ont vraisemblablement le même effet sur la productivité dans les secteurs où les politiques sont contraignantes et dans les secteurs où elles ne le sont pas.

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File URL: http://dx.doi.org/10.1787/122873667103
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 54.

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Date of creation: 15 Jun 2007
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Handle: RePEc:oec:elsaab:54-en

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Cited by:
  1. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
  2. Lisi, Domenico & Malo, Miguel, 2014. "Cross-Sectors Skill Intensity, Productivity and Temporary Employment," MPRA Paper 56470, University Library of Munich, Germany.
  3. Poschke, Markus, 2009. "Employment protection, firm selection, and growth," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1074-1085, November.
  4. 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.
  5. Campos, Nauro F & Nugent, Jeffrey B., 2012. "The Dynamics of the Regulation of Labor in Developing and Developed Countries since 1960," IZA Discussion Papers 6881, Institute for the Study of Labor (IZA).
  6. Bassanini, Andrea, 2012. "Aggregate Earnings and Macroeconomic Shocks: The Role of Labour Market Policies and Institutions," IZA Discussion Papers 6918, Institute for the Study of Labor (IZA).
  7. Simon Deakin & Prabirjit Sarkar, 2008. "Assessing the Long-Run Economic Impact of Labour Law Systems: A Theoretical Reappraisal and Analysis of New Time Series Data," WEF Working Papers 0043, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  8. Andrea Bassanini & Giorgio Brunello, 2011. "Barriers to Entry, Deregulation and Workplace Training," "Marco Fanno" Working Papers 0137, Dipartimento di Scienze Economiche "Marco Fanno".
  9. World Bank, 2011. "Employment Protection Legislation and Labor Market Outcomes : Theory, Evidence and Lessons for Croatia," World Bank Other Operational Studies 12902, The World Bank.
  10. Alexandra Flayols, 2010. "Rigidités du marché du travail et chômage : quelles relations ? Une réflexion à partir du cas de la France," Post-Print dumas-00653358, HAL.
  11. Alexandra Flayols, 2010. "Rigidités du marché du travail et chômage : quelles relations ? Une réflexion à partir du cas de la France," Post-Print dumas-00536673, HAL.
  12. Lisi, Domenico, 2009. "The Impact of Temporary Employment on Labour Productivity: Evidence from an Industry-Level Panel of EU Countries," MPRA Paper 26076, University Library of Munich, Germany.
  13. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-44.
  14. Primož Dolenc & Suzana Laporšek, 2013. "Flexicurity Policies and their Association with Productivity in the European Union," Prague Economic Papers, University of Economics, Prague, vol. 2013(2), pages 224-239.

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