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Job protection legislation and productivity growth in OECD countries

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Abstract:

Summary

We examine the effect of dismissal regulation on productivity in the OECD, using annual cross-country aggregate data on the stringency of employment protection legislation and industry-level data on productivity from 1982 to 2003. Our empirical results suggest that mandatory dismissal regulations have a depressing impact on productivity growth in industries where layoff restrictions are more likely to be binding. By contrast, we find no evidence of a productivity effect of regulations concerning temporary contracts, which suggests that partial reforms, facilitating the use of fixed-term and atypical contracts, are unlikely to have an important impact on efficiency and technological change and cannot therefore be a substitute for comprehensive reforms whereby dismissal restrictions for open-ended contracts are also weakened.

--- Andrea Bassanini, Luca Nunziata and Danielle Venn

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1468-0327.2009.00221.x

Affiliations: OECD and ERMES-TEPP, Université Paris 2; Università di Padova and IZA; OECD

Publication date: April 1, 2009

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