about productivity effects are indeterminate (OECD 2007). On the one hand, strict EPL could constrain the flow of workers into emerging high-productivity sectors and discourage technological change that is labor saving. On the other hand, because of commitment signals and expected tenure effects, strict EPL could increase worker effort and incentives to invest in human capital. At the same time, it could motivate productivity-enhancing investments to compensate for additional costs associated with job security rules.

Employment protection rules are not easily reduced to a single number, such as the minimum wage. Therefore, cross-country analysis typically relies on constructed indices that characterize a country’s EPL in a single quantitative measure. The most widely used is the OECD EPL index, which assesses countries in terms of the strictness of their provisions for protecting permanent workers against individual dismissal, for collective dismissal requirements, and for regulations governing temporary forms of employment (OECD 2013). Other approaches estimate the monetary costs that an employer can be expected to incur in complying with job security regulations (Heckman and Pagés 2004), combine both indices and expected costs of compliance (e.g., Botero et al _._ 2004), or use qualitative assessments by managers on the flexibility of hiring and firing arrangements (e.g., DiTella and MacCulloch 2005; Feldmann 2009). Admittedly, all of these indicators have limitations in terms of rigor or their ability to capture the real impact of EPL “on the ground”, largely because of incomplete enforcement (see Bertola, Boeri, and Cazes 2000).

The empirical literature on the impacts of EPL reflects the preponderance of evidence from OECD countries. Although increasing, there is less analysis pertaining to developing countries, with most of the research on Latin America. For the most part, researchers have concentrated on the effects of EPL on employment levels and dynamics.

# _Impacts on employment levels_

Studies on the employment impact of EPL are divided between those finding no significant effect and those finding a modest negative effect (i.e., higher unemployment and/or lower employment).<sup>13</sup> Moreover, the results can be characterized as fragile in the sense that findings are often sensitive to model specification and the treatment of data (Glyn et al. 2004; Howell et al. 2007). Researchers in different studies of a common set of countries have sometimes found different employment impacts. For example, using cross-sectional data for the 1980s and 1990s for Latin American and OECD countries, Heckman and Pagés (2000) find a negative employment effect of stricter job security rules. In a subsequent study (2004), they find no significant employment impact.

Much of the research in developed countries has tested the relationship between EPL (often using the OECD’s EPL index) and labor market outcomes by using cross-sectional national data. Interestingly, most of the earlier studies found a negative effect on employment and, in some cases, unemployment (e.g., Scarpetta 1996; Nickell 1997; Elmeskov, Martin, and Scarpetta 1998; Nickell and Layard 1999). More recent studies using this approach have found no significant employment impact (e.g., Baccaro and Rei 2005; Bassanini and Duvall 2006).

There has been some skepticism about whether cross-country regressions using aggregate data can accurately identify the impacts of EPL (and other labor market institutions). In recent years, a number of researchers have examined the effect of a regulatory change in a single country 13