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Dismissal protection and small firms’ hirings: evidence from a policy reform

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  • Stefan Bauernschuster

Abstract

Small firms are important drivers of employment creation and innovation. Dismissal protection raises firms’ adjustment costs and thus reduces worker flows. In many countries, small firms are exempted from dismissal protection regulations in order to increase their flexibility. This paper exploits a shift in the firm-size threshold of the German dismissal protection law in 2004 to analyze the causal effects of relaxed dismissal protection on the hiring behavior of small firms. Using difference-in-differences techniques, we find positive effects on hirings. Placebo treatment tests based on pre-treatment periods and a fake treatment group confirm the validity of our empirical strategy. Copyright Springer Science+Business Media, LLC. 2013

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  • Stefan Bauernschuster, 2013. "Dismissal protection and small firms’ hirings: evidence from a policy reform," Small Business Economics, Springer, vol. 40(2), pages 293-307, February.
    • Handle: RePEc:kap:sbusec:v:40:y:2013:i:2:p:293-307
    DOI: 10.1007/s11187-011-9370-3
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    Cited by:

    1. Jung, Sven, 2013. "Employment Adjustment in German Firms," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79696, Verein für Socialpolitik / German Economic Association.
    2. Lutz Bellmann & Hans-Dieter Gerner & Christian Hohendanner, 2014. "Fixed-term contracts and dismissal protection. Evidence from a policy reform in Germany," Working Paper Series in Economics 320, University of Lüneburg, Institute of Economics.
    3. Saibal Ghosh, 2022. "Firm Performance and Productivity: Is Labour an Obstacle?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(3), pages 709-728, September.
    4. Nico Dewaelheyns & Cynthia Van Hulle & Yannick Van Landuyt & Mathias Verreydt, 2021. "Labor Contracts, Wages and SME Failure," Sustainability, MDPI, vol. 13(14), pages 1-15, July.
    5. Hiesinger, Karolin, 2022. "Cost of Inclusion? Intended and Non-intended Effects of the Employment Quota for Workers with Disabilities," VfS Annual Conference 2022 (Basel): Big Data in Economics 264026, Verein für Socialpolitik / German Economic Association.
    6. Gürtzgen, Nicole & Hiesinger, Karolin, 2020. "Dismissal protection and long-term sickness absence: First evidence from Germany," ZEW Discussion Papers 20-040, ZEW - Leibniz Centre for European Economic Research.
    7. Sorgner, Alina, 2017. "Jobs at Risk!? Effects of Automation of Jobs on Occupational Mobility," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168088, Verein für Socialpolitik / German Economic Association.
    8. Brüll, Eduard, 2019. "Restrictions of fixed term employment contracts: Evidence from a German reform," ZEW Discussion Papers 19-034, ZEW - Leibniz Centre for European Economic Research.
    9. Bofinger, Peter & Buch, Claudia M. & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14 [Against a backward-looking economic policy. Annual Report 2013/14]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, September.
    10. Kugler Franziska & Schwerdt Guido & Wößmann Ludger, 2014. "Ökonometrische Methoden zur Evaluierung kausaler Effekte der Wirtschaftspolitik," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(2), pages 105-132, June.
    11. Kai Priesack, 2015. "Employment consequences of changes in dismissal protection: Evidence from a 2004 German reform," BDPEMS Working Papers 2015012, Berlin School of Economics.
    12. Gürtzgen, Nicole & Hiesinger, Karolin, 2020. "Dismissal Protection and Long-term Sickness Absence - First Evidence from Germany," IAB-Discussion Paper 202022, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    13. Sven Jung, 2014. "Employment adjustment in German firms [Betriebliche Beschäftigungsanpassung in Deutschland]," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 47(1), pages 83-106, March.
    14. Alina Sorgner, 2017. "The Automation of Jobs: A Threat for Employment or a Source of New Entrepreneurial Opportunities?," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 11(3), pages 37-48.

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    More about this item

    Keywords

    Dismissal protection; Small firms; Difference-in-differences; J38; K31; M21; L26;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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