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Title:The effect of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries PDF Logo
Authors:Cingano, Federico
Leonardi, Marco
Messina, Julián
Pica, Giovanni
Issue Date:2009
Series/Report no.:IZA discussion papers 4158
Abstract:This paper analyzes the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation in a cross-country framework. In the spirit of Rajan and Zingales (1998) and Ciccone and Papaioannou (2006), we exploit variation in the need for reallocation at the sectoral and aggregate level to assess the average effect of EPL on firms' policies. Then, exploiting firm-level information we study if the effect of EPL is stronger in firms with lower levels of internal resources. We find that, on average, EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors. The reduction in the capital-labour ratio is less pronounced in firms with higher internal resources, suggesting that financial constraints exacerbate the negative effects of EPL on capital deepening.
Subjects:Capital-labor substitution
labor market imperfections
financial market imperfections
JEL:J21
Persistent Identifier of the first edition:urn:nbn:de:101:1-20090513563
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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