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Employment Protection and Gross Job Flows: A Differences-in-Differences Approach

  • Alejandro Micco
  • Carmen Pagés-Serra

    ()

This paper examines the effect of employment protection regulation on gross job flows in a sample of developed and developing countries. By implementing a differences-in-differences test we lessen 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 the variance of demand or technological shocks. Unlike most of the existing literature, our analysis indicates that more stringent job security regulations slow down gross job flows, and this tendency is more pronounced in sectors that require higher labor flexibility. These effects occur within the sample of developed and developing countries and are very large in magnitude. Moreover, these effects are robust to changes in regulatory measures, measurement of sector flexibility requirements, control variables and samples.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4365.

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Date of creation: Aug 2004
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Handle: RePEc:idb:wpaper:4365
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  22. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  23. Arturo J. Galindo & Alejandro Micco & Guillermo Ordoñez, 2002. "Financial Liberalization: Does it Pay to Join the Party?," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
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  27. Alexis Camhi & Eduardo Engel & Alejandro Micco, 1997. "Dinámica de empleo y productividad en manufactura: Evidencia micro y consecuencias macro," Documentos de Trabajo 19, Centro de Economía Aplicada, Universidad de Chile.
  28. 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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