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Assessing the Impact of Labour Market Policies on Productivity: A Difference-in-Differences Approach

Listed author(s):
  • Andrea Bassanini


  • Danielle Venn


The impact of four labour market policies – employment protection legislation, minimum wages, parental leave and unemployment benefits – on productivity is examined here, using annual cross-country aggregate data on these policies and industry-level data on productivity from 1979 to 2003. We use a "difference-in-differences" framework, which exploits likely differences in the productivity effect of policies in different industries. Our identifying assumption is that a specific policy influences worker or firm behaviour, and thereby productivity, more in industries where the policy in question is likely to be more binding than in other industries. The advantage of this approach is twofold. First, as in standard cross-country analysis, we can exploit the cross-country variation of policies. Second, in contrast with standard cross-country analysis, we can control for unobserved factors that, on average, are likely to have the same effect on productivity in both policy-binding and non-binding industries. Nous examinons l'impact de quatre politiques du marché du travail – la législation pour la protection de l'emploi, le salaire minimum, le congé parental et l'indemnisation du chômage – sur la productivité. Pour ces politiques, nous utilisons des données annuelles agrégées comparables entre pays ainsi que des données sectorielles sur la productivité de 1979 à 2003 sont utilisées. Nous analysons ces données sur la base d'une méthode de "différence de différences", qui exploite la variabilité des effets des politiques dans les différents secteurs. Notre stratégie d'identification se fonde sur l'hypothèse que les comportements des entreprises ou des salariés, et donc leur productivité, sont davantage influencés par une politique dans les secteurs d'activité où celle-ci est vraisemblablement plus contraignante. L'avantage de cette approche est double. D'une part, à l'instar des analyses agrégées concernant plusieurs pays, nous pouvons exploiter la variabilité des politiques entre les pays. D'autre part, contrairement à ces analyses, nous pouvons contrôler pour des facteurs inobservés qui, en moyenne, ont vraisemblablement le même effet sur la productivité dans les secteurs où les politiques sont contraignantes et dans les secteurs où elles ne le sont pas.

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Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 54.

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Date of creation: 15 Jun 2007
Handle: RePEc:oec:elsaab:54-en
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