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Employment Protection and Misallocation of Resources across Plants: International Evidence

Lashitew, A. A., 2013, Groningen: GGDC, 53 p. (GGDC Working papers; vol. GD-142).

Research output: Working paperAcademic

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  • Addisu A. Lashitew
Employment protection affects aggregate productivity via several channels in potentially contradicting ways, which makes it difficult to establish the relationship between the two. This study focuses on the misallocation of production factors across plants, which has been shown in past studies to substantially reduce aggregate productivity. The study provides new evidence on the effect of employment protection on resource misallocation using a large dataset of manufacturing plants covering more than 90 countries. For measuring misallocation, I use the within‐industry dispersion of the marginal product of labor and total factor productivity. The results show that higher cost of dismissing redundant workers is positively associated with misallocation. The effect of dismissal cost is especially larger in industries that have greater demand for adjusting labor. More specifically, the effect is larger in industries that intrinsically have higher layoff rate, and in industries that have large positive or negative sales growth rates.
Original languageEnglish
Place of PublicationGroningen
PublisherGGDC
Number of pages53
VolumeGD-142
Publication statusPublished - 2013

Publication series

NameGGDC Working papers
PublisherGGDC
VolumeGD-142

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