NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Job Security Does Affect Economic Efficiency: Theory, A New Statistic, and Evidence from Chile

Amil Petrin, Jagadeesh Sivadasan

NBER Working Paper No. 12757
Issued in December 2006
NBER Program(s):   IO   PR   LS

The extensive empirical macro- and micro-level evidence on the impact of job security provisions is largely inconclusive. We argue that the weak evidence is a consequence of the weak power of statistics used, which is suggested by a dynamic theory of plant-level labor demand that we develop. This model speaks clearly on one issue: firing costs drive a wedge between the marginal revenue product of labor and its marginal cost. We examine changes in this gap as our test statistic. It is easy to compute and has a welfare interpretation. We use census data of Chilean manufacturing firms for the years 1979-1996 to look for real effects induced by two significant increases in the costs of dismissing employees. Similar to previous findings in other data, the traditional labor demand statistics provide little evidence of a negative impact from increases in firing costs. While we find no evidence that gaps increase for inputs that are not directly affected by firing costs, we find large and statistically significant increases in the mean and variance of the within-firm gap between the marginal revenue product of labor and the wage for both blue and white collar workers.

download in pdf format
   (524 K)

email paper

This paper is available as PDF (524 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Heckman and Pag├ęs w7773 The Cost of Job Security Regulation: Evidence from Latin American Labor Markets
Petrin and Levinsohn w11887 Measuring Aggregate Productivity Growth Using Plant-Level Data
Kugler The Effect of Job Security Regulations on Labor Market Flexibility. Evidence from the Colombian Labor Market Reform
Autor, Kerr, and Kugler w12860 Do Employment Protections Reduce Productivity? Evidence from U.S. States
Kugler w10215 The Effect of Job Security Regulations on Labor Market Flexibility: Evidence from the Colombian Labor Market Reform
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us