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The Effect of Employment Protection on Firms' Worker Selection

Author

Listed:
  • Butschek, Sebastian

    () (University of Cologne)

  • Sauermann, Jan

    () (SOFI, Stockholm University)

Abstract

To estimate the causal effect of employment protection on firms' worker selection, we study a policy change that reduced dismissal costs for the employers of over a tenth of Sweden's workforce. Our difference-in-differences analysis of firms' hiring uses individual ability measures including estimated worker fixed effects and cognitive test scores. We find that the reform reduced minimum hire quality by 5% of a standard deviation, half of which we can attribute to firms' hiring becoming more selective. Our results help discriminate between existing theories, supporting the prediction that firms shift their hiring standards in response to changes in dismissal costs.

Suggested Citation

  • Butschek, Sebastian & Sauermann, Jan, 2019. "The Effect of Employment Protection on Firms' Worker Selection," IZA Discussion Papers 12305, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12305
    as

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    References listed on IDEAS

    as
    1. Olsson, Martin, 2009. "Employment protection and sickness absence," Labour Economics, Elsevier, vol. 16(2), pages 208-214, April.
    2. Bjuggren, Carl Magnus & Skedinger, Per, 2018. "Does Job Security Hamper Employment Prospects?," Working Paper Series 1255, Research Institute of Industrial Economics.
    3. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July.
    4. repec:eee:pubeco:v:157:y:2018:i:c:p:138-157 is not listed on IDEAS
    5. Bjuggren, Carl Magnus, 2018. "Employment protection and labor productivity," Journal of Public Economics, Elsevier, vol. 157(C), pages 138-157.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    worker selection; screening; hiring standard; employment protection; dismissal costs;

    JEL classification:

    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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