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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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File URL: http://ftp.iza.org/dp4465.pdf
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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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  1. Blanchflower, D. & Oswald, A. & Garrett, M., 1988. "Insider Power In Wage Determination," Papers 319, London School of Economics - Centre for Labour Economics.
  2. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June.
  3. Kugler, Adriana & Pica, Giovanni, 2008. "Effects of employment protection on worker and job flows: Evidence from the 1990 Italian reform," Labour Economics, Elsevier, vol. 15(1), pages 78-95, February.
  4. 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.
  5. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 437-459.
  6. Pedro S. Martins, 2008. "Dismissals for cause: The difference that just eight paragraphs can make," Working Papers 24, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  7. Leonardi, Marco & Pica, Giovanni, 2007. "Employment Protection Legislation and Wages," IZA Discussion Papers 2680, Institute for the Study of Labor (IZA).
  8. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  9. 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.
  10. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 699-726.
  11. Garibaldi, Pietro & Violante, Giovanni L, 2004. "The Employment Effects of Severance Payments with Wage Rigidities," CEPR Discussion Papers 4608, C.E.P.R. Discussion Papers.
  12. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
  13. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2003. "Training in Europe," IZA Discussion Papers 933, Institute for the Study of Labor (IZA).
  14. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  15. 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.
  16. Leonardi, Marco & Pica, Giovanni, 2010. "Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation," IZA Discussion Papers 5335, Institute for the Study of Labor (IZA).
  17. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  18. Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, vol. 35(5), pages 1009-1034, July.
  19. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  20. repec:spr:pharme:v:22:y:2004:i:4:p:225-244 is not listed on IDEAS
  21. 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.
  22. Michael Wallerstein & Miriam Golden & Peter Lange, 1997. "Unions, Employers' Associations, and Wage-Setting Institutions in Northern and Central Europe, 1950–1992," ILR Review, Cornell University, ILR School, vol. 50(3), pages 379-401, April.
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