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Threshold Effects of Dismissal Protection Legislation in Germany

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  • Verick, Sher

    () (ILO International Labour Organization)

Abstract

In this paper we use a reform in the applicability of the Protection Against Dismissal Act or Kündigungsschutzgesetz in Germany to identify employment effects of the legislation for small establishments. Using a panel of establishments for the period 1997-2001, we find some evidence that a tightening of the threshold resulted in a higher probability of persistence and a lower probability of growth for the units in the treatment group during the post-reform years. When using the establishment size as according to the legislation, the effects were the strongest for establishments which were further away from the threshold. This result could reflect the presence of other institutional barriers or adjustment costs than those imposed by the Act. Alternatively, small establishments are unlikely to have perfect information regarding the applicability of the legislation. This is somewhat supported by the results when taking all employees as the measure for the establishment size. However, there is also some evidence that these results are being driven by other factors than the reform of the legislation.

Suggested Citation

  • Verick, Sher, 2004. "Threshold Effects of Dismissal Protection Legislation in Germany," IZA Discussion Papers 991, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp991
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    References listed on IDEAS

    as
    1. Boockmann, Bernhard & Hagen, Tobias, 2001. "The use of flexible working contracts in West Germany: evidence from an establishment panel," ZEW Discussion Papers 01-33, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Bertola, Giuseppe, 1992. "Labor Turnover Costs and Average Labor Demand," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 389-411, October.
    3. Katharine G. Abraham & Susan N. Houseman, 1994. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium," NBER Chapters,in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 59-94 National Bureau of Economic Research, Inc.
    4. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    dismissal protection legislation; difference-in-differences; labour demand;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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