Chapter 5: Empirical Studies on the Effects of Employment Protection Legislation
Empirical studies on employment protection legislation consider a wide variety of effects. First, effects relating to labour market status (such as levels, inﬂows and outﬂows, and distribution across various groups in employment and unemployment status, personnel turnover and interactions between regulations regarding employment protection and other labour market institutions on the one hand and macroeconomic shocks on the other). Secondly, structural change (job reallocation and entry and exit of ﬁrms). Thirdly, productivity and growth (levels and growth of labour productivity and total factor productivity, GDP growth and more indirectly related factors such as worker absenteeism, training and location of ﬁrms). Fourth, wages (among workers in general or among insiders). Finally, effects of employment protection legislation on perceived job security have been studied. As few studies were undertaken prior to 1990, this review comprises the period from 1990 to the present. The ﬁrst issue within the empirical research on the effects of employment protection, 75 PSkedinger_05_Finals.indd 75 1/27/2010 3:56:09 PM 76 Employment protection legislation as in other empirical studies, is to what degree a relationship can be established between legislation and the various outcomes studied. The second and more fundamental issue is whether a relationship is causal, that is to say, if the effect under study is in fact caused by employment protection legislation or if there is just a correlation. In the latter case, there may be some other factor – unobserved by the researcher – which explains the outcome (and is a correlated with the...
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