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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 upcoming 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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4465.

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Length: 31 pages
Date of creation: Oct 2009
Date of revision:
Publication status: published in: Labour Economics, 2010, 17 (1), 16-26
Handle: RePEc:iza:izadps:dp4465
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