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Better protected, better paid: Evidence on how employment protection affects wages

  • van der Wiel, Karen

This paper empirically establishes the effect of the employer's term of notice on the wage level of employees. The term of notice is defined as the period an employer has to notify workers in advance of their upcoming dismissal. The wages paid during this period are an important element of firing costs and hence employment protection. To find a causal effect, I exploit the exogenous change in the term of notice that resulted from the introduction of a new Dutch law in 1999. Strong evidence is found that a longer 'dormant' term of notice leads to higher wages. In my sample, an additional month of notice increases wages by three percent, ceteris paribus.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927-5371(09)00107-9
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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 16-26

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Handle: RePEc:eee:labeco:v:17:y:2010:i:1:p:16-26
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  1. Kugler, Adriana & Pica, Giovanni, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," IZA Discussion Papers 1743, Institute for the Study of Labor (IZA).
  2. Autor, David & Kerr, William & Kugler, Adriana, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," IZA Discussion Papers 2571, Institute for the Study of Labor (IZA).
  3. Blanchflower, D. & Oswald, A. & Garrett, M., 1988. "Insider Power In Wage Determination," Papers 319, London School of Economics - Centre for Labour Economics.
  4. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
  5. Bertola, Giuseppe & Rogerson, Richard, 1996. "Institutions and Labour Reallocation," CEPR Discussion Papers 1519, C.E.P.R. Discussion Papers.
  6. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, vol. 115(506), pages 799-832, October.
  7. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  8. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 437-459.
  9. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 699-726.
  10. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2003. "Training in Europe," IZA Discussion Papers 933, Institute for the Study of Labor (IZA).
  11. Michael Wallerstein & Miriam Golden & Peter Lange, 1997. "Unions, Employers' Associations, and Wage-Setting Institutions in Northern and Central Europe, 1950–1992," ILR Review, Cornell University, ILR School, vol. 50(3), pages 379-401, April.
  12. Leonardi, Marco & Pica, Giovanni, 2007. "Employment protection legislation and wages," Working Paper Series 0778, European Central Bank.
  13. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
  14. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  15. Leonardi, Marco & Pica, Giovanni, 2010. "Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation," IZA Discussion Papers 5335, Institute for the Study of Labor (IZA).
  16. repec:spr:pharme:v:22:y:2004:i:4:p:225-244 is not listed on IDEAS
  17. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  18. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  19. Pedro S. Martins, 2008. "Dismissals for cause: The difference that just eight paragraphs can make," Working Papers 24, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  20. Adriana Kugler adkugler@uh.edu & Giovanni Pica, 2005. "The Effects of Employment Protection on the Italian Labour Market," CSEF Working Papers 135, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  21. Holmlund, B. & Zetterberg, J., 1989. "Insider Effects In Wage Determination: Evidence From Five Countries," Papers 1989a, Uppsala - Working Paper Series.
  22. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
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