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Fear of Labor Rigidities – The Role of Expectations in Employment Growth in Peru

  • Pablo Lavado

    ()

    (Departamento de Economía, Universidad del Pacífico)

  • Gustavo Yamada

    ()

    (Departamento de Economía, Universidad del Pacífico)

Many studies have been conducted to analyze the effect of stricter Employment Protection Legislation (EPL). However, almost all of them has focused on an ex-post impact; leaving aside a second but equally important channel: expectations. This paper aims to analyze the role of expectations on peruvian formal and informal labor market; using news as our identification variable. We use the monthly number of news related to the approval of the General Labor Law (GLL), a proposal entailing future stronger labor rigidities, from January 2001 to May 2012. Using the Permanent Employment Survey (EPE), we find a negative relation between expectations towards a stricter labor market and both employment and average income. News mainly affect formal occupied EAP, arousing a substitution effect from formal to informal employment. We also discover that the effect of expectations differs in periods with higher versus lower GDP growth. Finally, we find some evidence supporting news having a cumulative effect: the larger the previous stock of news, the weaker the effect.

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File URL: http://srvnetappseg.up.edu.pe/siswebciup/Files/DD1316_Lavado-Yamada.pdf
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Paper provided by Departamento de Economía, Universidad del Pacífico in its series Working Papers with number 13-17.

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Length: 81 pages
Date of creation: Dec 2013
Date of revision: Dec 2013
Handle: RePEc:pai:wpaper:13-17
Contact details of provider: Web page: http://www.up.edu.pe/

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  1. 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.
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  5. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, 06.
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  7. 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.
  8. Lehmann, Hartmut & Muravyev, Alexander, 2012. "Labor Market Institutions and Informality in Transition and Latin American Countries," IZA Discussion Papers 7035, Institute for the Study of Labor (IZA).
  9. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
  10. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
  11. DiTella, Rafael & MacCulloch, Robert, 1999. "The consequences of labour market flexibility: Panel evidence based on survey data," ZEI Working Papers B 02-1999, University of Bonn, ZEI - Center for European Integration Studies.
  12. Ahsan, Ahmad & Pagés, Carmen, 2008. "Are All Labor Regulations Equal? Evidence from Indian Manufacturing," IZA Discussion Papers 3394, Institute for the Study of Labor (IZA).
  13. Bassanini, Andrea & Nunziata, Luca & Venn, Danielle, 2008. "Job Protection Legislation and Productivity Growth in OECD Countries," IZA Discussion Papers 3555, Institute for the Study of Labor (IZA).
  14. Pierre, Gaelle & Scarpetta, Stefano, 2004. "Employment regulations through the eyes of employers - do they matter and how do firms respond to them?," Policy Research Working Paper Series 3463, The World Bank.
  15. Garz, Marcel, 2013. "Unemployment expectations, excessive pessimism, and news coverage," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 156-168.
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