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Better Protected, Better Paid: Evidence on How Employment Protection Affects Wages

Author

Listed:
  • van der Wiel, Karen

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract
This paper empirically establishes the effect of the employer's term of notice on the wage level of employees. The term of notice is defined as the period an employer has to notify workers in advance of their upcoming dismissal. The wages paid during this period are an important element of firing costs and hence employment protection. To find a causal effect, I exploit the exogenous change in the term of notice that resulted from the introduction of a new Dutch law in 1999. Strong evidence is found that a longer 'dormant' term of notice leads to higher wages. In my sample, an additional month of notice increases wages by three percent, ceteris paribus.

Suggested Citation

  • van der Wiel, Karen, 2009. "Better Protected, Better Paid: Evidence on How Employment Protection Affects Wages," IZA Discussion Papers 4465, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4465
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    References listed on IDEAS

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    More about this item

    Keywords

    term of notice; employment protection; wages;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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