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Dismissal protection and worker flows in OECD countries: Evidence from cross-country/cross-industry data

  • Bassanini, Andrea
  • Garnero, Andrea

Exploiting a unique dataset including cross-country comparable hiring and separation rates by type of transition for 24 OECD countries, 23 business-sector industries and 13years, we study the effect of dismissal regulations on different types of gross worker flows, defined as one-year transitions. We use both a difference-in-difference approach – in which the impact of regulations is identified by exploiting likely cross-industry differences in their impact – and standard time-series analysis – in which the effect of regulations is identified through regulatory changes over time. We find that the more restrictive the regulation, the smaller is the rate of within-industry job-to-job transitions, in particular towards permanent jobs. By contrast, we find no significant effect as regards separations involving an industry change or leading to non-employment. The extent of reinstatement in the case of unfair dismissal appears to be the most important regulatory determinant of gross worker flows. We also present a large battery of robustness checks that suggest that our findings are robust.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 21 (2013)
Issue (Month): C ()
Pages: 25-41

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Handle: RePEc:eee:labeco:v:21:y:2013:i:c:p:25-41
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