Working Paper: CEPR ID: DP3926
Authors: Tito Boeri; Juan Francisco Jimeno Serrano
Abstract: Employment protection legislations (EPL) are not enforced uniformly across the board. There are a number of exemptions to the coverage of these provisions: firms below a given threshold scale and workers with temporary contracts are not subject to the most restrictive provisions. This within-country variation in enforcement allows making inferences on the impact of EPL that go beyond the usual cross-country approach. In this Paper we develop a simple model that explains why these exemptions are in place to start with. Then we empirically assess the effects of EPL on dismissal probabilities, based on a double-difference approach. Our results are in line with the predictions of the theoretical model. Workers in firms exempted from EPL are more likely to be laid-off. We do not observe this effect in the case of temporary workers.
Keywords: efficiency wages; employment protection; job loss
JEL Codes: J10; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EPL exemption (firm size < 15) (L25) | higher layoff probabilities (J63) |
| EPL (firm size >= 15) (L25) | lower layoff probabilities (J63) |
| EPL (Z21) | variation in layoff probabilities based on firm size (J65) |
| temporary workers (J63) | no effect from EPL (F69) |