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The Impact of German Job Protection Legislation on Job Creation in Small Establishments - An Application of the Regression Discontinuity Design

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  • Joachim Merz

    () (LEUPHANA University Lüneburg,Department of Economic, Behaviour and Law Sciences, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)))

Abstract

One proposal frequently raised to increase flexibility of the German labour market is the liberalization of the job protection law. It applies to those establishments with more than a cut-off number of employees. The argument examined in this paper is that this step in legal regulation hinders small enterprises from job creation. Changes in the cut-off number in the late 1990‘s provide the basis for estimating this effect. The evaluation approach is a Regression Discontinuity Design using these changes as natural experiments. Local treatment effects can be estimated non-parametrically by local linear regression. The data base used is the IAB establishment panel. The paper is the first one to exploit the policy changes named above and controlling for self-selection into the treatment job protection using minimal assumptions concerning model specification. The results are in line with earlier studies finding no evidence for hindering effects on job growth in small establishments.

Suggested Citation

  • Joachim Merz, 2005. "The Impact of German Job Protection Legislation on Job Creation in Small Establishments - An Application of the Regression Discontinuity Design," FFB-Discussionpaper 49, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  • Handle: RePEc:leu:wpaper:49
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    File URL: http://www.leuphana.de/fileadmin/user_upload/Forschungseinrichtungen/ffb/files/publikationen/diskussion/DP_49_application_regression.pdf
    File Function: First version, 2005
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    Citations

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    Cited by:

    1. Koller, Lena & Schnabel, Claus & Wagner, Joachim, 2005. "Arbeitsrechtliche Schwellenwerte und betriebliche Arbeitsplatzdynamik: Eine empirische Untersuchung am Beispiel des Schwerbehindertengesetzes," Discussion Papers 38, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    2. Koller, Lena, 2005. "Arbeitsrechtliche Schwellenwerte: Regelungen an der Schwelle zur Unüberschaubarkeit," Discussion Papers 40, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.

    More about this item

    Keywords

    employment protection; threshold effects; RDD; local linear regression; Germany;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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