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The Response of Wages to Protective Labor Legislation: Evidence from Canada

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  • Jane Friesen

Abstract

Using micro data from the 1986–87 Canadian Labour Market Activity Survey, the author examines the wage effect of laws requiring advance notice of layoffs and in some cases also requiring severance payments to laid-off workers. The results suggest that incumbent workers protected by advance notice and severance pay laws were able to extract higher wages than were incumbent workers unprotected by such laws. There is evidence, however, that the ultimate wage effect differed by workers' union status: starting wages of nonunion workers appear to have fallen to offset the subsequent wage increase, indicating that nonunion workers may “pay for†advance notice and severance pay laws, whereas union workers who were protected by such laws seem to have been able to exploit their bargaining position to increase their lifetime earnings.

Suggested Citation

  • Jane Friesen, 1996. "The Response of Wages to Protective Labor Legislation: Evidence from Canada," ILR Review, Cornell University, ILR School, vol. 49(2), pages 243-255, January.
    • Handle: RePEc:sae:ilrrev:v:49:y:1996:i:2:p:243-255
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    Cited by:

    1. Anders Bornhäll & Sven-Olov Daunfeldt & Niklas Rudholm, 2017. "Employment protection legislation and firm growth: evidence from a natural experiment," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(1), pages 169-185.
    2. Alain Delacroix, 2003. "Transitions into Unemployment and the Nature of Firing Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 651-671, July.
    3. Etienne Lale, 2019. "Labor-market Frictions, Incomplete Insurance and Severance Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 411-435, January.
    4. Per Skedinger, 2010. "Employment Protection Legislation," Books, Edward Elgar Publishing, number 13686.

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