DP3926 The Effects of Employment Protection: Learning from Variable Enforcement

Author(s): Tito Boeri , Juan Francisco Jimeno

Publication Date: June 2003

Keyword(s): employment protection , efficiency wages , job loss

JEL(s): J10 , J64

Programme Areas: Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP3926.asp

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.