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The Effects of Employment Protection: Learning from Variable Enforcement

  • Tito Boeri
  • Juan F. Jimeno

Employment protection legislations (EPL) are not enforced uniformly across the board. There are a number of exemptions to the coverage of these provisions: firms below a given threshold scale and workers with temporary contracts are not subject to the most restrictive provisions. This within country variation in enforcement allows to make inferences on the impact of EPL which go beyond the usual cross-country approach. In this paper we develop a simple model which explains why these exemptions are in place to start with. Then we empirically assess the effects of EPL on dismissal probabilities, based on a double-difference approach. Our results are in line with the predictions of the theoretical model. Workers in firms exempted from EPL are more likely to be laid-off. We do not observe this effect in the case of temporary workers. There is no effect of the exemption threshold on the growth of firms.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 252.

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Date of creation: 2003
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Handle: RePEc:igi:igierp:252
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  1. Adriana Kugler & Giovanni Pica, 2003. "The Effects of Employment Protection and Product Market Regulations on the Italian Labor Market," LABORatorio R. Revelli Working Papers Series 28, LABORatorio R. Revelli, Centre for Employment Studies.
  2. Bauer, Thomas K. & Bender, Stefan & Bonin, Holger, 2004. "Dismissal protection and worker flows in small establishments," IAB Discussion Paper 200401, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  3. Bauer, Thomas K. & Bonin, Holger & Sunde, Uwe, 2004. "Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data," RWI Discussion Papers 12, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI).
  4. Juan José Dolado & Carlos García-Serrano & Juan F. Jimeno, . "Drawing Lessons from the Boom of Temporary Jobs in Spain," Working Papers 2001-11, FEDEA.
  5. Kugler, Adriana & Pica, Giovanni, 2003. "Effects of Employment Protection and Product Market Regulations on the Italian Labor Market," IZA Discussion Papers 948, Institute for the Study of Labor (IZA).
  6. Gregg, Paul & Manning, Alan, 1997. "Skill-biassed change, unemployment and wage inequality," European Economic Review, Elsevier, vol. 41(6), pages 1173-1200, June.
  7. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
  8. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June.
  9. Giuseppe BERTOLA & Tito BOERI & Sandrine CAZES, 2000. "Employment protection in industrialized countries: The case for new indicators," International Labour Review, International Labour Organization, vol. 139(1), pages 57-72, 03.
  10. Hernanz, Virginia & Jimeno, Juan F & Kugler, Adriana D., 2003. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms," CEPR Discussion Papers 3724, C.E.P.R. Discussion Papers.
  11. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers.
  12. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
  13. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  14. Andrea Borgarello & Pietro Garibaldi & Lia Pacelli, 2003. "Employment Protection Legislation and the Size of Firms," LABORatorio R. Revelli Working Papers Series 23, LABORatorio R. Revelli, Centre for Employment Studies.
  15. Fabiano Schivardi & Roberto Torrini, 2003. "Firm Size Distribution and EPL in Italy," William Davidson Institute Working Papers Series 2003-613, William Davidson Institute at the University of Michigan.
  16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  17. R. Jackman & R. Layard & S. Nickell, 1996. "Combatting unemployment: is flexibility enough?," LSE Research Online Documents on Economics 47446, London School of Economics and Political Science, LSE Library.
  18. Bauer, Thomas K. & Bender, Stefan & Bonin, Holger, 2004. "Dismissal Protection and Worker Flows in Small Establishments," RWI Discussion Papers 14, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI).
  19. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  20. Adriana D. Kugler & Gilles Saint Paul, 2000. "Hiring and firing costs, adverse selection and long-term unemployment," Economics Working Papers 447, Department of Economics and Business, Universitat Pompeu Fabra.
  21. Bauer, Thomas K. & Bender, Stefan & Bonin, Holger, 2004. "Dismissal Protection and Worker Flows in Small Establishments," RWI Discussion Papers 14, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI).
  22. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  23. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  24. Winter-Ebmer, Rudolf, 2001. "Firm Size, Earnings, and Displacement Risk," Economic Inquiry, Western Economic Association International, vol. 39(3), pages 474-86, July.
  25. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 699-726.
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