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Employment protection and productivity: evidence from firm-level panel data in Japan


  • H. Okudaira
  • M. Takizawa
  • K. Tsuru


Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms’ production decisions or workers’ commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms’ total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs.

Suggested Citation

  • H. Okudaira & M. Takizawa & K. Tsuru, 2013. "Employment protection and productivity: evidence from firm-level panel data in Japan," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 2091-2105, May.
  • Handle: RePEc:taf:applec:45:y:2013:i:15:p:2091-2105
    DOI: 10.1080/00036846.2012.654913

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    References listed on IDEAS

    1. Kazuo Ogawa & Kazuyuki Suzuki, 2000. "Uncertainty and Investment: Some Evidence from the Panel Data of Japanese Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 51(2), pages 170-192, June.
    2. Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 217-228, June.
    3. Julián Messina & Giovanna Vallanti, 2007. "Job Flow Dynamics and Firing Restrictions: Evidence from Europe," Economic Journal, Royal Economic Society, vol. 117(521), pages 279-301, June.
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    Cited by:

    1. Daniel Schwab, 2016. "Employment Protection and the Labor Informality of the Youth: Evidence from India," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-280, Boston University - Department of Economics.
    2. repec:hal:wpaper:halshs-01122749 is not listed on IDEAS
    3. Andrew E. Clark & Akiko Kamesaka & Teruyuki Tamura, 2015. "Rising aspirations dampen satisfaction," Education Economics, Taylor & Francis Journals, vol. 23(5), pages 515-531, October.

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