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The Impact of German Job Protection Legislation on Job Creation in Small Establishments

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  • Derik Burgert

Abstract

A frequently-raised proposal in aid of increasing the flexibility of the German labour market, is the liberalisation of the job protection law. This law applies to those establishments with more than a specified cut-off number of employees. The argument examined in this paper is that this element of legal regulation hinders small enterprises from job creation. Changes in the cut-off number in the late 1990’s provide the basis for estimating this effect. The evaluation approach is a Regression Discontinuity Design using these changes as natural experiments. Local treatment effects can be estimated non-parametrically by local linear regression. The data base used is the IAB establishment panel. This paper is the first one to exploit the policy changes named above, whilst controlling for self-selection into the treatment “job protection”, using minimal assumptions concerning model specification. The results are in line with earlier studies, finding no evidence of impeding job growth in small establishments.

Suggested Citation

  • Derik Burgert, 2006. "The Impact of German Job Protection Legislation on Job Creation in Small Establishments," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(2), pages 123-139.
    • Handle: RePEc:aeq:aeqaeq:v52_y2006_i2_q2_p123-139
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    Cited by:

    1. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
    2. Koller Lena & Schnabel Claus & Wagner Joachim, 2007. "Schwellenwerte im Arbeitsrecht: Höhere Transparenz und Effizienz durch Vereinheitlichung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 8(3), pages 242-255, August.

    More about this item

    Keywords

    employment protection; threshold effects; RDD; local linear regression; Germany;
    All these keywords.

    JEL classification:

    • 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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