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

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  • Alejandro Micco
  • Carmen Pagés-Serra

Abstract

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.

Suggested Citation

  • Alejandro Micco & Carmen Pagés-Serra, 2004. "Employment Protection and Gross Job Flows: A Differences-in-Differences Approach," Research Department Publications 4365, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4365
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    3. Stefan Jestl & Michael Landesmann & Sandra M. Leitner, 2015. "Migrants and Natives in EU Labour Markets: Mobility and Job-Skill Mismatch Patterns," wiiw Research Reports 403, The Vienna Institute for International Economic Studies, wiiw.
    4. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2010. "The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries [Technology and labour regulations]," Economic Policy, CEPR;CES;MSH, vol. 25(61), pages 117-163.
    5. Lorenzo Cappellari & Carlo Dell'Aringa & Marco Leonardi, 2010. "Flexible Employment, Job Flows and Labour Productivity," DISCE - Quaderni dell'Istituto di Economia dell'Impresa e del Lavoro ieil0060, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    6. Mary Hallward-Driemeier & Bob Rijkers, 2013. "Do Crises Catalyze Creative Destruction? Firm-level Evidence from Indonesia," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1788-1810, December.
    7. Dany Jaimovich & Carmen Pages-Serra, 2009. "Who Is Claiming For Fixed-Term Contracts?," IHEID Working Papers 07-2009, Economics Section, The Graduate Institute of International Studies, revised Sep 2009.
    8. Haltiwanger, John & Kugler, Adriana & Kugler, Maurice & Micco, Alejandro & Pagés, Carmen, 2004. "Effects of tariffs and real exchange rates on job reallocation: evidence from Latin America," Discussion Paper Series In Economics And Econometrics 0410, Economics Division, School of Social Sciences, University of Southampton.
    9. Marc van Essen & J. (Hans) van Oosterhout & Pursey P. M. A. R. Heugens, 2013. "Competition and Cooperation in Corporate Governance: The Effects of Labor Institutions on Blockholder Effectiveness in 23 European Countries," Organization Science, INFORMS, vol. 24(2), pages 530-551, April.
    10. Rita K. Almeida & Z. Bilgen Susanlı, 2012. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 540-558, November.
    11. Almeida, Rita & Carneiro, Pedro, 2008. "Mandated benefits, employment, and inequality in a dual economy," Social Protection Discussion Papers and Notes 45051, The World Bank.
    12. Sangheon Lee & Deirdre McCann & Nina Torm, 2008. "The World Bank's “Employing Workers” index: Findings and critiques – A review of recent evidence," International Labour Review, International Labour Organization, vol. 147(4), pages 416-432, December.
    13. Kugler, Adriana D. & Pica, Giovanni, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," CEPR Discussion Papers 5256, C.E.P.R. Discussion Papers.
    14. Lisi, Domenico, 2009. "The Impact of Temporary Employment on Labour Productivity: Evidence from an Industry-Level Panel of EU Countries," MPRA Paper 26076, University Library of Munich, Germany.
    15. Galli, Rossana. & Kucera, David,, 2008. "Gender, informality and employment adjustment in Latin America," ILO Working Papers 994135003402676, International Labour Organization.
    16. Herrera, Ana María & Karaki, Mohamad B., 2015. "The effects of oil price shocks on job reallocation," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 95-113.
    17. Michael Landesmann & Sandra M. Leitner, 2015. "Labour Mobility of Migrants and Natives in the European Union: An Empirical Test of the 'Greasing of the Wheels’ Effect of Migrants," wiiw Working Papers 119, The Vienna Institute for International Economic Studies, wiiw.
    18. Prasnikar, Janez & Mikerevic, Dragan & Voje, Damjan, 2014. "Blockholding and organisational diversity: the case of a transition economy," Journal of East European Management Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 19(3), pages 277-304.
    19. Herrera, Ana María & Karaki, Mohamad B. & Rangaraju, Sandeep Kumar, 2017. "Where do jobs go when oil prices drop?," Energy Economics, Elsevier, vol. 64(C), pages 469-482.
    20. John Haltiwanger & Adriana Kugler & Maurice Kugler & Alejandro Micco & Carmen Pages, 2004. "Effects of tariffs and real exchange rates on job reallocation: evidence from Latin America," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(4), pages 191-208.

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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