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Employment Protection and Gross Job Flows1

  • Alejandro Micco - Carmen Pages

This paper examines the empirical relation between employment protection regulation and gross job flows in a sample of developed and developing countries. By implementing a difference in difference test we avoid the potentially severe endogeneity and omitted variable problems associated with cross-country regressions. This test is based on the hypothesis that job security regulations are more binding in some sectors of economic activity than in others depending on sector-specific characteristics such as product demand volatility or factor specificity. Unlike most of the existing literature, our analysis indicates that more stringent job security regulations slow down job reallocation. This is more so in sectors that require higher labor flexibility. These effects occur within the sample of developed and developing countries and are large in magnitude. Moreover, they are robust to changes in regulatory measures, measurement of sector flexibility requirements, control variables and samples. In contrast, regulations on firm entry and exit seem to play a limited role in reducing job flow

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 295.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:295
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  1. Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo 6, Centro de Economía Aplicada, Universidad de Chile.
  2. Alex Grey, 1995. "Job Gains and Job Losses: Recent Literature and Trends," OECD Jobs Study Working Papers 1, OECD Publishing.
  3. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  4. Kugler, Adriana & Jimeno, Juan F. & Hernanz, Virginia, 2002. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," IZA Discussion Papers 657, Institute for the Study of Labor (IZA).
  5. Timothy Dunne & John Haltiwanger & John Baldwin, 1994. "A Comparison of Job Creation and Job Destruction in Canada and the United States," Working Papers 94-2, Center for Economic Studies, U.S. Census Bureau.
  6. Giuseppe Bertola & Richard Rogerson, 1996. "Institutions and Labor Reallocation," NBER Working Papers 5828, National Bureau of Economic Research, Inc.
  7. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  8. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  9. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," Research Department Publications 4293, Inter-American Development Bank, Research Department.
  10. Claessens, Stijn & Laeven, Luc, 2002. "Financial development, property rights, and growth," Policy Research Working Paper Series 2924, The World Bank.
  11. Matthew Barnes & Jonathan Haskel, 2002. "Job Creation, Job Destruction and the Contribution of Small Businesses: Evidence for UK Manufacturing," Working Papers 461, Queen Mary University of London, School of Economics and Finance.
  12. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  13. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  14. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  15. Marcela Meléndez & Katja Seim & Pablo Medina, 2003. "Productivity Dynamics Of The Colombian Manufacturing Sector," DOCUMENTOS CEDE 003390, UNIVERSIDAD DE LOS ANDES-CEDE.
  16. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  17. Bergoeing, Raphael & Repetto, Andrea & Edwards, Sebastian, 2004. "Productivity dynamics," Journal of Development Economics, Elsevier, vol. 75(2), pages 329-332, December.
  18. Pietro Garibaldi & Paolo Mauro, 2002. "Anatomy of employment growth," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 67-114, 04.
  19. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
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