_L. Fox and A.M. Oviedo_ _Institutions and Labor Market Outcomes in Africa_ way of controlling for unobservables that can lead to biased estimates when looking at levels. Studies such as Haltiwanger _et al._ (2006), and Micco and Pagés (2007) adapt the original methodology from Rajan and Zingales (1998), by taking the United States as the reference country (i.e. the country with the least stringent EPL), and comparing how differences in job flows across industries vary between the US and other countries. These studies find that in more regulated countries job turnover is lower in sectors where employment is intrinsically more volatile, thus reducing the “natural” turnover differences between sectors.

Ideally, we would like to take one of these approaches in our analysis of SSA. We are not able to do so for the following reasons:

- Most labor market reforms in SSA (such as those praised in recent _Doing Business_ reports) have not been captured by DB scores, since most of these scores were computed after reforms took place (most scores are available only from 2007 onwards). Moreover, enterprise survey data is only available for one country-year in most cases. Current surveys are planned to allow for panel data, so that in the future this type of “quasiexperimental” analysis will be feasible.

- Certain labor market outcomes studied in OECD and Latin American countries are not easily measured in SSA using standard definitions (e.g. unemployment). Instead, labor markets in SSA display much larger levels of informality (either at the firm, or at the worker level). In order to measure the different “stages of employment” at the firm and worker level, carefully conducted labor force survey data are required. These data are only now becoming available.

- Countries generally do not have province-level labor laws, as they do in India. Nor do we have data on the extent of enforcement. In addition, in most small, low-income SSA countries, the overwhelming majority of private formal sector jobs are concentrated in one or two main cities.

- In our firm-level data, we only observe _net job creation_ (employment growth), which is a very imperfect indicator of labor dynamics. A firm can very well exhibit no net job creation and have large gross flows, yet, concluding that the firm is not adjusting because net job creation is low would be incorrect.

What follows is a compilation of the evidence we can gather on the effects of EPL from the firm level data currently available for SSA. Following the argument of La Porta _et al._ (1998) and Botero _et al._ (2004) that the legal origin of the country is associated with the quality of its institutions, including the amount of regulation, we divide our sample into two groups, one with countries with a common law legal system (all of them British ex-colonies), and the other with countries with a civil law system (all ex-French colonies, except Cape Verde, which is a former Portuguese colony).

Our main variable measuring labor regulation comes from the _Doing Business_ indicators. (DB hereafter). A valid criticism of these indicators is that the most commonly used measures of labor regulation generally consider all regulations to be detrimental to economic performance. Hence, these measures deliberately ignore the potential costs (for instance the negative externalities) of having fully de-regulated markets. In the case of EPL, they also ignore the power difference between employees and employers which in the past, when EPL did not exist, produced highly negative economic and social consequences (e.g. Europe in the 19<sup>th</sup> century). In its critical assessment of the DB indicators, the World Bank’s Independent Evaluation Group 6