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American Economic Journal: Applied Economics: Vol. 1 No. 2 (April 2009)

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Do Labor Market Rigidities Have Microeconomic Effects? Evidence from within the Firm

Article Citation

Lafontaine, Francine, and Jagadeesh Sivadasan. 2009. "Do Labor Market Rigidities Have Microeconomic Effects? Evidence from within the Firm." American Economic Journal: Applied Economics, 1(2): 88-127.

DOI: 10.1257/app.1.2.88

Abstract

We exploit a unique outlet-level dataset from a multinational chain with over 2,500 outlets in 43 countries to investigate the effects of labor regulations that protect employment. The dataset contains information on output, materials, and labor costs at a weekly frequency over several years, allowing us to examine the consequences of labor market rigidity at a much more detailed level than has been possible to date. We find that higher labor market rigidity is associated with significantly higher levels of hysteresis. We also find some evidence that labor costs are less responsive to sales revenue in more highly regulated markets. (JEL: E24, J08, J23, K31, M51)

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Authors

Lafontaine, Francine (U MI)
Sivadasan, Jagadeesh (U MI)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J08: Labor Economics Policies
J23: Labor Demand
K31: Labor Law
M51: Personnel Economics: Firm Employment Decisions; Promotions

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