Labor Disputes and Job Flows

Abstract

This article uses variations in local conditions of the activity of the labor courts to assess the effect of dismissal costs on the labor market. Judicial activity is analyzed using a data set of individual labor disputes brought to French courts over the years 1996 to 2003. First, the authors present a simple theoretical framework helping us understand the links between litigation costs, judicial outcomes and firing costs. Second, the authors regress job flows on indicators of judicial outcomes, using an instrument, based on local shocks in the supply of lawyers. They find that when the numbers of lawyers increase, workers litigate more often, which should increase the firing costs for the firms. This increased filing rate causes a large decrease in employment fluctuations, especially for shrinking or exiting firms. The total effect on employment growth is slightly positive; this last result being more sensitive to the adopted specification. 7 Corresponding author: corinne.prost@insee.fr. +33 (0)1.41.17.60.67. Insee-15 bd Gabriel Péri, 92240 Malakoff, France. We are grateful to

Labor Courts and Firing Costs: The Labor‐Market Effects of Trial Delays

“…Among others, Almeida andCarneiro (2009, 2012) for Brazil; Okudaira (2015) for Japan ;Fraisse, Kramarz, and Prost (2015) for France; and Gianfreda and Vallanti (2017) for Italy exploit geographical variations in labor inspections and labor courts' activity to identify the effects of labor regulation. Recently, few studies have used indirect measures of enforcement, such as labor inspections, courts' activity, and trials' length, to study whether within-country variation in enforcement affects firms' employment decisions and productivity.…”

“…In a standard search and matching model, the searching process is costly both for firms and workers. exploit the heterogeneity of the Italian judiciary districts in terms of trials' duration and, following Gianfreda and Vallanti (2017) and Fraisse, Kramarz, and Prost (2015), 6 we propose an identification strategy based on a source of variation of dismissal costs related to legislation enforcement that varies across space and time: even when labor laws do not change, labor courts tend to operate differently across geographical jurisdictions and years. By decreasing both job creation and job destruction higher firing costs unambiguously reduce job reallocation while the effects on employment are ambiguous (Hopenhayan and Rogerson 1993;Mortensen and Pissarides 1994;Pissarides 2000).…”

“…See Skedinger (2011) for a comprehensive survey. exploit the heterogeneity of the Italian judiciary districts in terms of trials' duration and, following Gianfreda and Vallanti (2017) and Fraisse, Kramarz, and Prost (2015), 6 we propose an identification strategy based on a source of variation of dismissal costs related to legislation enforcement that varies across space and time: even when labor laws do not change, labor courts tend to operate differently across geographical jurisdictions and years. 7 This within-country variation in enforcement allows us to make inferences on the impact of EPL that go beyond the usual cross-country approach.…”

“…Second, the risk of reverse causality should not be overlooked as a limited access to the labor market may affect the litigation rate among workers and therefore the length of legal disputes. 6 Fraisse, Kramarz, and Prost (2015) focus on the variation of labor courts activity (i.e., the number of filed suits over the number of dismissed workers) and suit outcomes at the local level as a determinant of firing costs while Gianfreda and Vallanti (2017) focus on trials' length. 7 Cross-country differences in the duration of suits have been shown to be influenced by the characteristics of the legal system.…”

“…The OECD EPL index is one of the most widely used in the empirical studies on the economic effects of labor-market regulation(OECD 2004;Venn 2009). Such indicators, which generally cover a larger set of countries than the OECD index or a longer period of time, have been constructed by either by the World Bank or by individual researchers (see for exampleBelot and Van Ours 2004; Blanchard and Wolfers 2000;Botero et al 2004).2 See for a discussionFraisse, Kramarz, and Prost (2015). Such indicators, which generally cover a larger set of countries than the OECD index or a longer period of time, have been constructed by either by the World Bank or by individual researchers (see for exampleBelot and Van Ours 2004; Blanchard and Wolfers 2000;Botero et al 2004).2 See for a discussionFraisse, Kramarz, and Prost (2015).…”