Do employment protections reduce productivity?
Subtitle: evidence from U.S. states
By: David H. Autor, William R. Kerr, Adriana D. Kugler
Contributors: Kerr, William R. (William Robert); Kugler, Adriana D.; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 07-048; Working paper (Harvard Business School. Division of Research) -- 07-048
Publisher: Division of Research, Harvard Business School
Published: 2007
Place of publication: Boston]
Language: eng
Number of pages: 28
Description: 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.
Notes: "January 12, 2007"--Added t.p.

Includes bibliographical references.