Employment protection and productivity: evidence from firm-level panel data in Japan |
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| Authors: | H Okudaira M Takizawa K Tsuru |
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| Institution: | 1. Department of Economics , Okayama University , 3-1-1, Tsushima-naka, Kita-ku, Okayama City , Okayama 700-8530 , Japan okudaira@e.okayama-u.ac.jp;3. Department of Economics , Toyo University , 5-28-20, Hakusan, Bunkyo-ku , Tokyo 112-8606 , Japan;4. The Research Institute of Economy , Trade and Industry , 1-3-1, Kasumigaseki, Chiyoda-ku , Tokyo 100-8901 , Japan |
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| Abstract: | Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms’ production decisions or workers’ commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms’ total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs. |
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| Keywords: | employment protection total factor productivity capital substitution firing cost |
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