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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. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," IDB Publications (Working Papers) 39858, Inter-American Development Bank.
  2. Giuseppe Bertola & Richard Rogerson, 1996. "Institutions and Labor Reallocation," NBER Working Papers 5828, National Bureau of Economic Research, Inc.
  3. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002. "Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms," Economics Working Papers 651, Department of Economics and Business, Universitat Pompeu Fabra.
  4. 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.
  5. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March.
  6. 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.
  7. 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.
  8. Stijn Claessens & Luc Laeven, 2003. "Financial Development, Property Rights, and Growth," Journal of Finance, American Finance Association, vol. 58(6), pages 2401-2436, December.
  9. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  10. John Baldwin & Timothy Dunne & John Haltiwanger, 1998. "A Comparison Of Job Creation And Job Destruction In Canada And The United States," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 347-356, August.
  11. Alex Grey, 1995. "Job Gains and Job Losses: Recent Literature and Trends," OECD Jobs Study Working Papers 1, OECD Publishing.
  12. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  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. 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.
  15. 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.
  16. 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.
  17. Pietro Garibaldi & Paolo Mauro, 2002. "Anatomy of employment growth," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 67-114, 04.
  18. Bergoeing, Raphael & Repetto, Andrea & Edwards, Sebastian, 2004. "Productivity dynamics," Journal of Development Economics, Elsevier, vol. 75(2), pages 329-332, December.
  19. Marcela Meléndez & Katja Seim & Pablo Medina, 2003. "Productivity Dynamics Of The Colombian Manufacturing Sector," DOCUMENTOS CEDE 003390, UNIVERSIDAD DE LOS ANDES-CEDE.
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