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Employment Protection and Productivity: Evidence from firm-level panel data in Japan

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  • OKUDAIRA Hiroko
  • TAKIZAWA Miho
  • TSURU Kotaro

Abstract

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 of the labour market, by affecting firms' production decisions or workers' commitment levels. This paper 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 judgments 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

  • OKUDAIRA Hiroko & TAKIZAWA Miho & TSURU Kotaro, 2011. "Employment Protection and Productivity: Evidence from firm-level panel data in Japan," Discussion papers 11078, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:11078
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    File URL: https://www.rieti.go.jp/jp/publications/dp/11e078.pdf
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    References listed on IDEAS

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    1. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1, January.
    2. 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.
    3. 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.
    4. James J. Heckman & Carmen Pagés, 2004. "Introduction to "Law and Employment: Lessons from Latin American and the Caribbean"," NBER Chapters,in: Law and Employment: Lessons from Latin America and the Caribbean, pages 1-108 National Bureau of Economic Research, Inc.
    5. 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.
    6. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    7. Hiroko Okudaira, 2008. "The Economic Costs of Court Decisions Concerning Dismissals in Japan: Identification by Judge Transfers," Discussion Papers in Economics and Business 08-08, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
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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. Andrew E. Clark & Akiko Kamesaka & Teruyuki Tamura, 2015. "Rising Aspirations Dampen Satisfaction," Working Papers halshs-01122749, HAL.
    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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