The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence

Arbeitspapier

This paper investigates the role of policies and institutions for aggregate labour market dynamics during the recent financial crisis using firm-level data. First, it provides comparable estimates on firm-level labor adjustment by country, industry and firm size. Second, using variance decomposition methods, it shows that differences in firm-level labor adjustment accounts for about 40% of the cross-country variation in aggregate employment growth at the outset of the crisis. We interpret this as evidence that differences in institutional settings accounted for a substantial part of the variation in aggregate employment growth. Third, we find that stronger protection for regular workers is associated with lower (higher) employment (earnings-per-worker) response in the wake of output shocks. This suggests employment protection shifts the burden of adjustment from the extensive to the intensive margin. However, in explaining the diverse cross-country patterns in employment adjustment during the crisis, the impact of employment protection alone seems to be small.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 7404

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Labor Demand
• Subject: labour market adjustment ; employment protection ; global financial crisis

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gál, Peter ; Hijzen, Alexander ; Wolf, Zoltan
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/80541
• Last update: 10.03.2025, 11:42 AM CET