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How does employment protection legislation influence hiring and firing decisions by the smallest firms?

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Listed:
  • André van Stel
  • José Maria Millán
  • Concepcion Roman
  • Ana Millán

Abstract

This paper examines the impact of employment protection legislation (EPL) on hiring decisions by own-account workers and firing decisions by very small firms (1-4 employees). Using data from the EU-15 countries, our results show that the strictness of employment protection legislation is negatively related to both these types of decisions, and hence, to labour mobility among the smallest firms. This new evidence may be useful for governments aiming to create a more enabling macro-environment for employment and productivity growth.

Suggested Citation

  • André van Stel & José Maria Millán & Concepcion Roman & Ana Millán, 2013. "How does employment protection legislation influence hiring and firing decisions by the smallest firms?," Scales Research Reports H201216, EIM Business and Policy Research.
    • Handle: RePEc:eim:papers:h201216
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    Cited by:

    1. André Stel & Jorge Barrientos-Marín & Leonel Caçador-Rodrigues & Ana Millán & José María Millán, 2023. "Measuring performance differentials across entrepreneurship types," International Entrepreneurship and Management Journal, Springer, vol. 19(3), pages 981-1016, September.
    2. Albiol, Judit, 2014. "The Significance of Business Exit for Future Entrepreneurial Activity," Working Papers 2072/238221, Universitat Rovira i Virgili, Department of Economics.
    3. repec:ces:ifodic:v:14:y:2016:i:3:p:19255698 is not listed on IDEAS
    4. Henley, Andrew, 2019. "Transitioning from Solo Self-Employed to Microbusiness Employer: Local Economic Environment or Owner Characteristics?," IZA Discussion Papers 12189, Institute of Labor Economics (IZA).
    5. Ana Millán & José María Millán & Concepción Román, 2016. "The Role of Start-up Incentives on Entrepreneurship Dynamics in a Post-Crisis Era: Evidence from European Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(3), pages 29-35, October.
    6. Karpuz, Ahmet & Kim, Kirak & Ozkan, Neslihan, 2020. "Employment protection laws and corporate cash holdings," Journal of Banking & Finance, Elsevier, vol. 111(C).
    7. Alex Coad & Kristian Nielsen & Bram Timmermans, 2017. "My first employee: an empirical investigation," Small Business Economics, Springer, vol. 48(1), pages 25-45, January.
    8. Albiol, Judit & Díaz Serrano, Lluís & Teruel, Mercedes, 2014. "Is Self-employment a Way to Escape from Skill Mismatches?," Working Papers 2072/247652, Universitat Rovira i Virgili, Department of Economics.
    9. Agénor, Pierre-Richard & Lim, King Yoong, 2018. "Unemployment, growth and welfare effects of labor market reforms," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 19-38.
    10. repec:cii:cepiei:2014-q2-138-2 is not listed on IDEAS
    11. W.J. Liebregts & F.C. Stam, 2016. "Employment protection and entrepreneurship: Unpacking the effects of employment protection legislation on the allocation of entrepreneurial activity in society," Working Papers 16-08, Utrecht School of Economics.
    12. Cockx, Bart & Desiere, Sam, 2024. "Labour costs and the decision to hire the first employee," European Economic Review, Elsevier, vol. 170(C).
    13. Millán, José María & Congregado, Emilio & Román, Concepción, 2014. "Persistence in entrepreneurship and its implications for the European entrepreneurial promotion policy," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 83-106.
    14. Pilar García Perea & Concepción Román, 2019. "Characterisation of self-employment in Spain from a European perspective," Economic Bulletin, Banco de España, issue JUN.
    15. Karpuz, Ahmet & Luo, Di & Xiao, Rongbing & Zhao, Huainan, 2023. "The effect of labour protection laws on the relationship between leverage and wages," Journal of Banking & Finance, Elsevier, vol. 148(C).
    16. Ana Millán & José María Millán & Concepción Román, 2016. "The Role of Start-up Incentives on Entrepreneurship Dynamics in a Post-Crisis Era: Evidence from European Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(03), pages 29-35, October.
    17. André Stel & José Millán & Concepción Román, 2014. "Investigating the impact of the technological environment on survival chances of employer entrepreneurs," Small Business Economics, Springer, vol. 43(4), pages 839-855, December.
    18. Cowling, Michael Leith & Wooden, Mark, 2021. "Does solo self-employment serve as a ‘stepping stone’ to employership?," Labour Economics, Elsevier, vol. 68(C).
    19. Caliendo, Marco & Fossen, Frank M. & Kritikos, Alexander S., 2022. "Personality characteristics and the decision to hire," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 31(3), pages 736-761.
    20. Okudaira, Hiroko, 2018. "The economic costs of court decisions concerning dismissals in Japan: Identification by judge transfers," International Review of Law and Economics, Elsevier, vol. 53(C), pages 60-75.
    21. Jose Maria Millan & Emilio Congregado & Concepcion Roman & Mirjam van Praag & Andre van Stel, 2011. "The Value of an Educated Population for an Individual's Entrepreneurship Success," Tinbergen Institute Discussion Papers 11-066/3, Tinbergen Institute, revised 06 May 2014.
    22. Jollès, Maya & Meyermans, Eric & Vašíček, Bořek, 2023. "Determinants of macroeconomic resilience in the euro area: An empirical assessment of national policy levers," Economic Systems, Elsevier, vol. 47(3).
    23. Małgorzata Szczepaniak & Agnieszka Szulc-Obloza, 2021. "Associations Between Job Satisfaction and Employment Protection in Selected European Union Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 542-554.
    24. Savšek, Simon, 2018. "What are the main obstacles to hiring after recessions in Europe?," Working Paper Series 2153, European Central Bank.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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