The research in this article was conducted while the authors were Special Sworn Status researchers of the US Census Bureau at the Boston Census Research Data Center (BRDC). Support for this research from NSF grant (ITR-0427889) is gratefully acknowledged. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This article has been screened to ensure that no confidential data are revealed. We are grateful to seminar participants at the IZA Conference on Employment Protection and Labor Markets, the Census Bureau RDC Conference, MIT, NBER Labor and Productivity Groups, SOLE, and AEA and, especially, to Daron Acemoglu, Josh Angrist, Giuseppe Bertola, Björn Brügemann, and Paul Oyer for their comments. Autor acknowledges generous support from the National Science Foundation (CAREER SES-0239538) and the Alfred P. Sloan Foundation. Kugler acknowledges support from a GEAR grant from the University of Houston.
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Does Employment Protection Reduce Productivity? Evidence From US States†
Article first published online: 22 JUN 2007
DOI: 10.1111/j.1468-0297.2007.02055.x
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How to Cite
Autor, D. H., Kerr, W. R. and Kugler, A. D. (2007), Does Employment Protection Reduce Productivity? Evidence From US States. The Economic Journal, 117: F189–F217. doi: 10.1111/j.1468-0297.2007.02055.x
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Publication History
- Issue published online: 22 JUN 2007
- Article first published online: 22 JUN 2007
- Submitted: Xx Xxxx 200x Accepted: Accepted: Xx Xxx 200x
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Theory predicts that mandated employment protection may reduce productivity by distorting production choices. We use the adoption of wrongful-discharge protection by state courts in the US from 1970 to 1999 to evaluate the empirical link between dismissal costs and productivity. Drawing on establishment-level data from the Census Bureau, our estimates suggest that wrongful-discharge protection reduces employment flows and firm entry rates. Moreover, plants engage in capital deepening and experience a decline in total factor productivity, indicative of altered production techniques. Evidence of strong contemporaneous growth in employment, however, leads us to view our findings as suggestive but tentative.