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Employment regulations through the eyes of employers - do they matter and how do firms respond to them?

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  • Pierre, Gaelle
  • Scarpetta, Stefano

Abstract

The authors present evidence on how employers perceive labor regulations and react when these are perceived to constrain the operation of their firm. They draw from harmonized surveys of (up to) 17,000 firms around the world and compare employers'responses with actual labor legislation. The authors find that employers'concerns about labor regulations are closely matched by the relative stringency of de jure labor laws. Countries that have, from an international perspective, tight labor regulations tend to have higher proportions of employers reporting these regulations as severe constraints. But not all firms are affected in the same way by onerous labor regulations. Medium sized firms are those whose business and prospects for growth are most negatively affected. Similarly, innovating firms are disproportionally affected by tight labor regulations. There is also clear evidence in the data that firms facing tight regulations invest more in training and make greater use of temporary employment. Small firms mainly rely on temporary employment, while medium and large firms, as well as innovating firms, tend to rely more on on-the-job training if labor regulations make hiring and firing very costly.

Suggested Citation

  • 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.
  • Handle: RePEc:wbk:wbrwps:3463
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    Keywords

    Health Monitoring&Evaluation; Environmental Economics&Policies; Public Health Promotion; Labor Policies; Labor Management and Relations; Environmental Economics&Policies; Labor Management and Relations; Health Monitoring&Evaluation; Labor Standards; Banks&Banking Reform;
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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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