that restrict the ability of firms to adjust wages in response to a shock (e.g. centralized wage bargaining). A more fundamental problem is that cross-country analyses of job flows may be flawed by severe omitted variable problems and measurement errors, including differences in the distribution of activity across industries and size of firms, as well as different cut-off points in the enterprise surveys from which job flow data are obtained.

In this paper, we draw from a harmonized and integrated firm-level dataset including 16 developed, emerging and transition economies. With these data, we explore the industry and size dimensions of the job flows in detail and relate them to institutional differences across countries.<sup>1</sup> To give a preview of our results, we find that countries share a number of features of job flows along the industry and size dimensions. All countries are characterized by large job flows. These vary significantly and systematically across industries, pointing to technological and market-driven factors, but especially across firms of different sizes. However, there are notable cross-country differences even after controlling for industry and size effects. Thus, we develop a formal test of the links between hiring and firing regulations and jobs flows in this paper, and also test for the robustness of our results to the inclusion of other regulations affecting business operations. We use a difference-indifference approach whereby we identify an industry and size class’s baseline job reallocation from the United States data. Under the assumption that regulations in the United States are among the least restrictive in our sample, the baseline should proxy for the technological and market driven job turnover in the absence of policy-induced adjustment costs. Under the additional assumption that this technological and market driven demand for labor reallocation carries over to other countries, we assess whether industries that require more labor mobility are disproportionately affected by regulations that raise adjustment costs. The advantage, compared with standard cross-country/cross-industry empirical studies, is that we exploit within country differences between industry/sizes based on the interaction between country and industry/size characteristics. Thus, we can also control for country and industry/size effects, thereby minimizing the problems of omitted variable bias and other misspecifications.

Interestingly, we find support for the general hypothesis that hiring and firing costs reduce turnover, especially in those industries that require more frequent labor adjustment. Regulations also distort the patterns of industry/size flows. Within each industry, medium

> 1To our knowledge, the only other paper that econometrically analyzes the effects of labor regulations on gross job flows across countries is Micco and Pages [2004]. Their paper exploits sectoral gross job flows data for manufacturing for 18 countries. We extend their work by also including the service industry for a subset of countries and, more importantly, by controlling for industry specific differences in firm size. In addition, our data allow distinguishing between jobs flows generated by the entry and exit of firms and those generated by the reallocation of labor by incumbent firms. As shown in the paper, this sheds additional light on labor reallocation and the role of regulations in labor and product markets.

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