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Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement

Author

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  • Almeida, Rita K.

    () (World Bank)

  • Susanli, Z. Bilgen

    () (Isik University)

Abstract

This paper examines how stringent de facto firing regulations affect firm size throughout the developing world. We exploit a large firm level dataset across 63 countries and within country variation in the enforcement of the labor codes in countries with very different de jure firing regulations. Our findings strongly suggest that firms facing a stricter enforcement of firing regulations are on average smaller. We interpret this finding as supportive of the fact that more stringent de facto firing regulations tend to reduce average employment. We also find robust evidence that this effect is stronger for more labor intensive manufacturing firms, especially those operating in low-technology sectors. Evidence also shows that this negative correlation does not hold in countries with a very weak rule of law.

Suggested Citation

  • Almeida, Rita K. & Susanli, Z. Bilgen, 2011. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," IZA Discussion Papers 6006, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6006
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    References listed on IDEAS

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    1. Caballero, Ricardo J. & Cowan, Kevin N. & Engel, Eduardo M.R.A. & Micco, Alejandro, 2013. "Effective labor regulation and microeconomic flexibility," Journal of Development Economics, Elsevier, vol. 101(C), pages 92-104.
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    13. Almeida, Rita K. & Carneiro, Pedro, 2007. "Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil," IZA Discussion Papers 3094, Institute for the Study of Labor (IZA).
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    15. Abidoye, Babatunde & Orazem, Peter & Vodopivec, Milan, 2008. "Firing Cost and Firm Size: A Study of Sri Lanka's Severance Pay System," Staff General Research Papers Archive 12922, Iowa State University, Department of Economics.
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    Cited by:

    1. Anagnostopoulos, Achilleas & Siebert, W. Stanley, 2012. "The Impact of Greek Labour Market Regulation on Temporary and Family Employment: Evidence from a New Survey," IZA Discussion Papers 6504, Institute for the Study of Labor (IZA).
    2. Mariana Viollaz, 2016. "Enforcement of Labor Market Regulations: Heterogeneous Compliance and Adjustment across Gender," CEDLAS, Working Papers 0199, CEDLAS, Universidad Nacional de La Plata.
    3. Gindling, T. H. & Mossaad, Nadwa & Trejos, Juan Diego, 2014. "The Consequences of Increased Enforcement of Legal Minimum Wages in a Developing Country: An Evaluation of the Impact of the Campaña Nacional de Salarios Mínimos in Costa Rica," IZA Discussion Papers 8253, Institute for the Study of Labor (IZA).
    4. Viollaz, Mariana, 2016. "Enforcement of Labor Market Regulations: Heterogeneous Compliance and Adjustment across Gender," MPRA Paper 72000, University Library of Munich, Germany.

    More about this item

    Keywords

    firing regulations; enforcement; developing countries; micro data; labor markets;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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