Do Employment Protections Reduce Productivity? Evidence from U.S. States

By David H. Autor, William R. Kerr, Adriana D. Kugler. Social Science Research Network, 2007

175 citations recorded by the source corpus.

Theory predicts that mandated employment protections may reduce productivity by distorting production choices. Firms facing (non-Coasean) worker dismissal costs will curtail hiring below efficient levels and retain unproductive workers, both of which should affect productivity. These theoretical predictions have rarely been tested. We use the adoption of wrongful-discharge protections by U.S. state courts over the last three decades to evaluate the link between dismissal costs and productivity. Drawing on establishment-level data from the Annual Survey of Manufacturers and the Longitudinal Business Database, our estimates suggest that wrongful-discharge protections reduce employment flows and firm entry rates. Moreover, analysis of plant-level data provides evidence of capital deepening and a decline in total factor productivity following the introduction of wrongful-discharge protections. This last result is potentially quite important, suggesting that mandated employment protections reduce productive efficiency as theory would suggest. However, our analysis also presents some puzzles including, most significantly, evidence of strong employment growth following adoption of dismissal protections. In light of these puzzles, we read our findings as suggestive but tentative.

Subfields: Economics and Econometrics, General Health Professions, Public Administration

View Paper: https://www.semanticscholar.org/paper/e495d4fdd52b809ed3af81396f1dd864553f0722

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Citations in the corpus

Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation (2013, unknown): “The focus on the heterogeneity of the wage effects of EPL across workers makes this study distinct also from previous studies, which use firm-level data on wages (Bird and Knopf, 2009; Martins, 2009) or productivity (Autor et al., 2007; Cingano et al., 2010).”
Dismissal Protection and Worker Flows in OECD Countries: Evidence from Cross-Country/Cross-Industry Data (2013, background): “2 See among others Autor et al. (2007), Boeri and Jimeno (2005), Marinescu (2009), Gomez-Salvador et al. (2004), Messina and Vallanti (2007), Haltiwanger et al. (2008), Cingano et al. (2010), and, for less conclusive findings, Bauer et al. (2007), Martins (2009) and von Below and Thoursie (2010). 3 ”
Employment Protection Legislation, Adjustment Costs and Cross-Country Differences in Cost Behavior (2012, background): “DeFreitas and Marshall (1998), Besley and Burgess (2004), Micco and Pages (2006), Pierre and Scarpetta (2006), Autor et al. (2007), Cingano et al.”
Jobs for Shared Prosperity: Time for Action in the Middle East and North Africa (2013, background): “However, rigid dismissal has also occasionally been shown to increase productivity, through higher training commitments by employers (who cannot get rid of people) or higher capital investments for the same reason (Autor, Kerr, and Kugler 2007; Belot, Boone, and van Ours 2007).”
Does Employment Protection Reduce Productivity? Evidence from US States (2007, unknown): “By contrast, the public policy and implied contract leads and lags have typically positive coefficients, as is shown in Appendix Table 1 of Autor et al. (2007).”
Labour Regulation and Employment Dynamics at the State Level in India (2009, background): “Recent evidence of the TFP–turnover link has also been found across US states (Autor et al., 2007).”
Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make (2009, background): “…level data; Ichino and Riphahn (2005) finds that absenteeism triples when workers in an Italian bank reach the end of their probationary period; and Autor et al. (2007) reports effects of the good faith exception to employment-at-will of approximately 2% in terms of total factor productivity using…”
Big Constraints to Small Firms’ Growth? Business Environment and Employment Growth across Firms (2009, background): “…on firms’ adjustment and on labor market outcomes more generally (a few recent examples are Besley and Burgess 2004; Botero et al. 2004; Haltiwanger, Scarpetta, and Schweiger 2006; Micco and Pagés 2006; Petrin and Sivadasan 2006; Autor, Kerr, and Kugler 2007; and Almeida and Carneiro 2009).”
The Economic Consequences of Legal Origins (2008, unknown): “Autor et al. (2006) find in the U.S. that wrongful discharge protections reduce employment flows and firm entry rates, thereby adversely affecting productivity. Insofar as legal origins affect labor regulations, French legal origin countries will have less efficient labor markets. Recent research al”
Setting It Right: Employment Protection, Labour Reallocation and Productivity (2011, background): “Autor et al. (2007) analyse the impact of the adoption of wrongful-discharge protection norms by state courts in the United States on different indicators of firms’ performance.”
The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU Countries (2009, unknown): “Autor et al. (2007) study the impact of adoption of wrongful-discharge protection norms in the US, using cross-state differences in the timing of adoption.”
Employment Protection Legislation, Multinational Firms, and Innovation (2012, background): “Autor et al. (2007) find using variation in the adoption of wrongful discharge protection across U.S. states that, although increased dismissal costs increase labor productivity, they are associated with lower total factor productivity.”
Labor Market Regulations: What Do We Know About Their Impacts in Developing Countries? (2014, unknown): “For example, Autor, Kerr, and Kugler (2007) attribute higher labor productivity growth in states adopting stricter dismissal rules to capital and skills deepening on the part of ﬁrms.”