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Do Labor Market Rigidities Have Microeconomic Effects? Evidence from within the Firm

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  • Francine Lafontaine
  • Jagadeesh Sivadasan

Abstract

We exploit a unique outlet-level dataset from a multinational chain with over 2,500 outlets in 43 countries to investigate the effects of labor regulations that protect employment. The dataset contains information on output, materials, and labor costs at a weekly frequency over several years, allowing us to examine the consequences of labor market rigidity at a much more detailed level than has been possible to date. We find that higher labor market rigidity is associated with significantly higher levels of hysteresis. We also find some evidence that labor costs are less responsive to sales revenue in more highly regulated markets. (JEL: E24, J08, J23, K31, M51)

Suggested Citation

  • Francine Lafontaine & Jagadeesh Sivadasan, 2009. "Do Labor Market Rigidities Have Microeconomic Effects? Evidence from within the Firm," American Economic Journal: Applied Economics, American Economic Association, vol. 1(2), pages 88-127, April.
  • Handle: RePEc:aea:aejapp:v:1:y:2009:i:2:p:88-127
    Note: DOI: 10.1257/app.1.2.88
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    References listed on IDEAS

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    Cited by:

    1. Bas, Maria & Carluccio, Juan, 2009. "Wage bargaining and the boundaries of the multinational firm," LSE Research Online Documents on Economics 28700, London School of Economics and Political Science, LSE Library.
    2. Böckerman, Petri & Skedinger, Per & Uusitalo, Roope, 2015. "Seniority rules, worker mobility and wages: Evidence from multi-country linked employer-employee data," MPRA Paper 68581, University Library of Munich, Germany.
    3. Norbäck, Pehr-Johan & Duanmu , Jing-Lin & Skedinger, Per, 2012. "Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data," Working Paper Series 935, Research Institute of Industrial Economics.
    4. Dragos Adascalitei & Sameer Khatiwada & Miguel Á. Malo & Pignatti Moran, 2015. "Employment protection and collective bargaining during the great recession: a comprehensive review of international evidence," Revista de Economía Laboral - Spanish Journal of Labour Economics, Asociación Española de Economía Laboral - AEET, vol. 12, pages 50-87.
    5. Ant Bozkaya & William R. Kerr, 2014. "Labor Regulations and European Venture Capital," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 776-810, December.
    6. Nicolae Stef, 2017. "Bankruptcy and the difficulty of firing," EconomiX Working Papers 2017-26, University of Paris Nanterre, EconomiX.
    7. Zoega Gylfi, 2010. "The Financial Crisis: Joblessness and Investmentlessness," Capitalism and Society, De Gruyter, vol. 5(2), pages 1-28, October.
    8. Azizjon Alimov, 2015. "Labor Protection Laws and Bank Loan Contracting," Journal of Law and Economics, University of Chicago Press, vol. 58(1), pages 37-74.
    9. Gylfi Zoega, 2009. "Employment and Asset Prices," Birkbeck Working Papers in Economics and Finance 0917, Birkbeck, Department of Economics, Mathematics & Statistics.
    10. Per Skedinger, 2010. "Employment Protection Legislation," Books, Edward Elgar Publishing, number 13686.
    11. Carluccio, Juan & Bas, Maria, 2015. "The impact of worker bargaining power on the organization of global firms," Journal of International Economics, Elsevier, vol. 96(1), pages 162-181.
    12. Popov, Alexander & Roosenboom, Peter, 2009. "On the real effects of private equity investment: evidence from new business creation," Working Paper Series 1078, European Central Bank.
    13. Kim, Dongwoo & Koedel, Cory & Ni, Shawn & Podgursky, Michael, 2017. "Labor market frictions and production efficiency in public schools," Economics of Education Review, Elsevier, vol. 60(C), pages 54-67.
    14. Francine Lafontaine & Jagadeesh Sivadasan, 2009. "Within-firm Labor Productivity across Countries: A Case Study," NBER Chapters,in: International Differences in the Business Practices and Productivity of Firms, pages 137-172 National Bureau of Economic Research, Inc.
    15. Duanmu, Jing-Lin, 2014. "A race to lower standards? Labor standards and location choice of outward FDI from the BRIC countries," International Business Review, Elsevier, vol. 23(3), pages 620-634.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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