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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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  17. 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.
  18. 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.
  19. Kugler, Adriana & Saint-Paul, Gilles, 2000. "Hiring and Firing Costs, Adverse Selection and Long-term Unemployment," IZA Discussion Papers 134, Institute for the Study of Labor (IZA).
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