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How does employment protection legislation influence hiring and firing decisions by the smallest firms?

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  • Millán, Ana
  • Millán, José María
  • Román, Concepción
  • van Stel, André

Abstract

This paper examines the impact of employment protection legislation (EPL) on hiring decisions by own-account workers and firing decisions by very small firms (one to four employees). Using data from the EU-15 countries, our results show that the strictness of employment protection legislation is negatively related to both these types of decisions, and hence, to labour mobility among the smallest firms. This new evidence may be useful for governments aiming to create a more enabling macro-environment for employment and productivity growth.

Suggested Citation

  • Millán, Ana & Millán, José María & Román, Concepción & van Stel, André, 2013. "How does employment protection legislation influence hiring and firing decisions by the smallest firms?," Economics Letters, Elsevier, vol. 121(3), pages 444-448.
    • Handle: RePEc:eee:ecolet:v:121:y:2013:i:3:p:444-448
    DOI: 10.1016/j.econlet.2013.09.021
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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