The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU Countries

By F. Cingano, M. Leonardi, Julián Messina, Giovanni Pica. Social Science Research Network, 2009

261 citations recorded by the source corpus.

This paper analyzes the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation in a cross-country framework. In the spirit of Rajan and Zingales (1998) and Ciccone and Papaioannou (2006), we exploit variation in the need for reallocation at the sectoral and aggregate level to assess the average effect of EPL on firms� policies. Then, exploiting firm-level information we study if the effect of EPL is stronger in firms with lower levels of internal resources. We find that, on average, EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors. The reduction in the capital-labour ratio is less pronounced in firms with higher internal resources, suggesting that financial constraints exacerbate the negative effects of EPL on capital deepening.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/18488ebc4bf06888f83e8452a2786fb0d71f4e78

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Citations in the corpus

Setting It Right: Employment Protection, Labour Reallocation and Productivity (2011, result): “Cingano et al. (2010) reach similar conclusions using Italian data to examine a 1990 reform that raised dismissal costs for firms with fewer than 15 employees only.”
How Much Do Educational Outcomes Matter in OECD Countries? (2011, background): “For example, Nicoletti and Scarpetta (2003) show that short-run growth experiences across OECD countries are related to product market regulations, and Cingano et al. (2010) find that employment protection legislation is associated with firm-level investment and other firm outcomes across sectors an”
Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation (2013, unknown): “Yet another margin – outside the scope and the data availability of this study – is investment (Cingano et al., 2010): stricter EPL may induce firms to substitute rigid labour with capital and raise the capital-labour ratio.”
Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms (2012, unknown): “The empirical part of most of the existing papers on EPL and productivity is based on cross-country and/or cross-industry regressions which usually nd negative relationship between EPL and productivity (Micco and Pagés, 2008; Cingano et al., 2010).”
What Drives the Dynamics of Business Growth (2016, unknown): “Finally, existing econometric evidence suggests that stringent labour market policy also has a negative impact on capital investment especially for financially constrained firms (Cingano et al. 2010).”
Dismissal Protection and Worker Flows in OECD Countries: Evidence from Cross-Country/Cross-Industry Data (2013, methodology): “, 2008, and Cingano et al., 2010), we identify the effect of dismissal regulations by exploiting this theoretical property and using a difference-in-difference approach à la Rajan and Zingales (1998), where low-reallocation industries are used as a sort of control group for highreallocation industri”
Do better schools lead to more growth? Cognitive skills, economic outcomes, and causation (2012, unknown): “…to explain differences within developed countries, considerable analysis has gone into how various regulations of labor and product markets within the OECD affect economic growth (e.g., Nicoletti and Scarpetta 2003 on product market regulations and Cingano et al. (2010) on labor market regulation).”
Employment Protection Legislation, Multinational Firms, and Innovation (2012, methodology): “2 See Autor, Kerr, & Kugler (2007), Bassanini, Nunziata, and Venn, (2009), and Cingano et al. (2010).”
Productivity growth in Italy: a tale of a slow-motion change (2018, unknown): “Analyzing 14 EU countries, Cingano et al. (2010) confirm the previous result and also find a depressing impact of EPL on capital and investment per worker.”
Labor Market Regulations: What Do We Know About Their Impacts in Developing Countries? (2014, unknown): “In their analysis of 14 European countries, Cingano et al. (2010) ﬁnd negative impacts of EPL on labor productivity, particularly in sectors with high rates of labor reallocation.”
Innovation across Europe: how important are institutional differences? (2011, background): “, 2009; Poschke, 2009), on investment (Cingano et al., 2010) and on trade (Kambourov, 2009) in EU countries.”