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Better Protected, Better Paid: Evidence on How Employment Protection Affects Wages

  • van der Wiel, Karen

    ()

    (CPB Netherlands Bureau for Economic Policy Analysis)

This paper empirically establishes the effect of the employer's term of notice on the wage level of employees. The term of notice is defined as the period an employer has to notify workers in advance of their up-coming dismissal. The wages paid during this period are an important element of firing costs and hence employment protection. To find a causal effect, I exploit the exogenous change in the term of notice that resulted from the introduction of a new Dutch law in 1999. Strong evidence is found that a longer ‘dormant’ term of notice leads to higher wages. In my sample, an additional month of notice increases wages by three percent, ceteris paribus.

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File URL: http://ftp.iza.org/dp3352.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3352.

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Length: 26 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3352
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  1. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, vol. 115(506), pages 799-832, October.
  2. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  3. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training in Europe," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 346-360, 04/05.
  4. Marco Leonardi & Giovanni Pica, 2007. "Employment Protection Legislation and Wages," CSEF Working Papers 175, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. Joseph G. Altonji & Robert A. Shakotko, 1985. "Do Wages Rise With Job Seniority?," NBER Working Papers 1616, National Bureau of Economic Research, Inc.
  6. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Harvard Business School Working Papers 07-048, Harvard Business School.
  7. Kugler, Adriana & Pica, Giovanni, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," IZA Discussion Papers 1743, Institute for the Study of Labor (IZA).
  8. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
  9. repec:use:tkiwps:0701 is not listed on IDEAS
  10. Bertola, Giuseppe & Rogerson, Richard, 1996. "Institutions and Labour Reallocation," CEPR Discussion Papers 1519, C.E.P.R. Discussion Papers.
  11. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
  12. Holmlund, B. & Zetterberg, J., 1989. "Insider Effects In Wage Determination: Evidence From Five Countries," Papers 1989a, Uppsala - Working Paper Series.
  13. 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.
  14. Martins, Pedro S., 2007. "Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make," IZA Discussion Papers 3112, Institute for the Study of Labor (IZA).
  15. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  16. Blanchflower, D. & Oswald, A. & Garrett, M., 1988. "Insider Power In Wage Determination," Papers 319, London School of Economics - Centre for Labour Economics.
  17. Michael Wallerstein & Miriam Golden & Peter Lange, 1997. "Unions, employer associations, and wage-setting institutions in northern and central Europe, 1950û1992," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 50(3), pages 379-401, April.
  18. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  19. Adriana Kugler adkugler@uh.edu & Giovanni Pica, 2005. "The Effects of Employment Protection on the Italian Labour Market," CSEF Working Papers 135, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  20. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
  21. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  22. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
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