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The Reallocation of Employment and the Role of Employment Protection Legislation

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  • Simon Burgess

Abstract

Output and productivity is affected by the allocation of workers between firms, industries and occupations as well as by total employment. Policy affects the ability of markets to carry out the reallocation of factors, and the aim of facilitating this process may involve reducing restraints on the ability of firms to hire and fire labour. This is the connection between the reallocation of labour and Employment Protection Legislation (EPL). This paper addresses two questions: first, is there any evidence that the tightness of a country's EPL does affect the speed with which labour is reallocated? Second, do differences in reallocation speed matter quantitatively for the country's welfare? To address the first question, we define five alternative measurements of reallocation and apply these measures to our sample of ten of the largest OECD countries, disaggregated into 20 industries, over the period of 18 years, 1971-1988. The results provides some support for the idea of a link between EPL and the speed of labour reallocation. On the second question, some preliminary investigations show that this may not be a trivial issue. The qualitative answer is clear: an economy which is slow in moving labour from low to high productivity firms will produce less output and exhibit lower aggregate productivity growth; a simple model suggests that the magnitude of this effect may be significant.

Suggested Citation

  • Simon Burgess, 1994. "The Reallocation of Employment and the Role of Employment Protection Legislation," CEP Discussion Papers dp0193, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0193
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    Citations

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    Cited by:

    1. Henneberger, Fred & Sousa-Poza, Alfonso, 2002. "Beweggründe und Determinanten zwischenbetrieblicher Mobilität: Die Schweiz in einer internationalen Perspektive (Motives and determinants of job-to-job mobility : Switzerland in an international persp," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 35(2), pages 205-231.
    2. Stepan Jurajda & Janet Mitchell, 2001. "Markets and Growth," William Davidson Institute Working Papers Series 382, William Davidson Institute at the University of Michigan.
    3. António Menezes & José Vieira, 2008. "Training, Job Upgrading, Job Creation and Job Destruction," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(3), pages 275-292, September.
    4. Steinar Holden, 2001. "Does Price Stability Exacerbate Labour Market Rigidities in the EMU?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 403-418, December.
    5. Julian Morgan, 2001. "Employment security and the demand for labour in Europe," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1763-1774.
    6. Michela Ponzo, 2012. "On-the-job Search in Italian Labor Markets: An Empirical Analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(2), pages 213-232, July.
    7. Theodossiou, I. & Zangelidis, A., 2009. "Should I stay or should I go? The effect of gender, education and unemployment on labour market transitions," Labour Economics, Elsevier, vol. 16(5), pages 566-577, October.
    8. repec:eee:labchp:v:3:y:1999:i:pc:p:2985-3028 is not listed on IDEAS
    9. repec:iab:iabmit:v:35:i:2:p:205-231 is not listed on IDEAS
    10. Ponzo, Michela, 2009. "On-the-job search in italian labour markets: an empirical analysis," MPRA Paper 24200, University Library of Munich, Germany.

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