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

  • Burgert, Derik
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    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.

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    File URL: http://mpra.ub.uni-muenchen.de/5971/1/MPRA_paper_5971.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5971.

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    Date of creation: Feb 2005
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    Handle: RePEc:pra:mprapa:5971
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    1. Thomas Bauer & Uwe Sunde & Holger Bonin, 2004. "Dismissal Protection and Worker Flows in Small Establishments," RWI Discussion Papers 0012, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
    2. Garibaldi, Pietro & Pacelli, Lia & Borgarello, Andrea, 2003. "Employment Protection Legislation and the Size of Firms," IZA Discussion Papers 787, Institute for the Study of Labor (IZA).
    3. Carling, Kenneth & Larsson, Laura, 2002. "Does early intervention help the unemployed youth?," Working Paper Series 2002:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Verick, Sher, 2004. "Threshold Effects of Dismissal Protection Legislation in Germany," IZA Discussion Papers 991, Institute for the Study of Labor (IZA).
    5. 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.
    6. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
    7. Erich Battistin & Enrico Rettore, 2003. "Another look at the regression discontinuity design," CeMMAP working papers CWP01/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    8. Jinyong Hahn & Petra Todd & Wilbert Van der Klaauw, 1999. "Evaluating the Effect of an Antidiscrimination Law Using a Regression-Discontinuity Design," NBER Working Papers 7131, National Bureau of Economic Research, Inc.
    9. Buddelmeyer, Hielke & Skoufias, Emmanuel, 2003. "An Evaluation of the Performance of Regression Discontinuity Design on PROGRESA," IZA Discussion Papers 827, Institute for the Study of Labor (IZA).
    10. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    11. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
    12. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
    13. Jahn, Elke J. & Schnabel, Claus, 2003. "Bestandsschutz durch Abfindungen: Höhere Rechtssicherheit und Effizienz," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 83(4), pages 219-223.
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