TY - JOUR AU - Autor,David H. AU - Kerr,William R. AU - Kugler,Adriana D. TI - Do Employment Protections Reduce Productivity? Evidence from U.S. States JF - National Bureau of Economic Research Working Paper Series VL - No. 12860 PY - 2007 Y2 - January 2007 UR - http://www.nber.org/papers/w12860 L1 - http://www.nber.org/papers/w12860.pdf N1 - Author contact info: David Autor Department of Economics MIT, E52-371 50 Memorial Drive Cambridge, MA 02142-1347 Tel: 617/258-7698 Fax: 617/253-1330 E-Mail: dautor@mit.edu William R. Kerr Harvard Business School Rock Center 212 Soldiers Field Boston, MA 02163 Tel: 617/496-7021 E-Mail: wkerr@hbs.edu Adriana D. Kugler Georgetown University Georgetown Public Policy Institute 37th and O Streets NW, Suite 311 Washington, DC 20057 Tel: 202/687-5716 Fax: 202/687-5544 E-Mail: ak659@georgetown.edu AB - Theory predicts that mandated employment protections may reduce productivity by distorting production choices. Firms facing (non-Coasean) worker dismissal costs will curtail hiring below efficient levels and retain unproductive workers, both of which should affect productivity. These theoretical predictions have rarely been tested. We use the adoption of wrongful-discharge protections by U.S. state courts over the last three decades to evaluate the link between dismissal costs and productivity. Drawing on establishment-level data from the Annual Survey of Manufacturers and the Longitudinal Business Database, our estimates suggest that wrongful-discharge protections reduce employment flows and firm entry rates. Moreover, analysis of plant-level data provides evidence of capital deepening and a decline in total factor productivity following the introduction of wrongful-discharge protections. This last result is potentially quite important, suggesting that mandated employment protections reduce productive efficiency as theory would suggest. However, our analysis also presents some puzzles including, most significantly, evidence of strong employment growth following adoption of dismissal protections. In light of these puzzles, we read our findings as suggestive but tentative. ER -