Do Labor Market Rigidities have Microeconomic Effects? Evidence from Within the Firm
American Economic Journal: Applied Economics, Vol.1, No. 2, pp. 88-127, April 2009
Posted: 1 Mar 2007 Last revised: 6 Jun 2013
Date Written: May 1, 2008
We exploit a unique outlet-level dataset from a multinational chain with over 2,500 outlets in 43 countries to investigate the effects of labor regulations that protect employment. The dataset contains information on output, materials, and labor costs at a weekly frequency over several years, allowing us to examine the consequences of labor market rigidity at a much more detailed level than has been possible to date. We find that higher labor market rigidity is associated with significantly higher levels of hysteresis. We also find some evidence that labor costs are less responsive to sales revenue in more highly regulated markets.
Keywords: Severance pay, adjustment costs, labor flexibility, retailing
JEL Classification: J08, J23, K31, L51
Suggested Citation: Suggested Citation