Chapter

The Effect of Job Security Regulations on Labor Market Flexibility

Adriana D. Kugler

in Law and Employment

Published by University of Chicago Press

Published in print October 2004 | ISBN: 9780226322827
Published online March 2013 | e-ISBN: 9780226322858 | DOI: http://dx.doi.org/10.7208/chicago/9780226322858.003.0004
The Effect of Job Security Regulations on Labor Market Flexibility

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This chapter considers the incidence of a substantial reduction of firing costs on flexibility and unemployment in a less-developed country. In particular, the chapter studies the impact of the Colombian labor market reform of 1990, which reduced severance payments substantially, on worker flows into and out of unemployment and its implied net effect on unemployment. The chapter uses a micro-level data set from Colombia to examine the effects of a reduction in firing costs on worker turnover. The labor market reform introduced in Colombia in 1990 reduced severance payments for all workers hired after 1990 and covered by the legislation (formal-sector workers). Informal workers, who were not covered by the legislation, were not directly affected by the reform and, thus, are used here as a comparison group in the estimations. The empirical analysis exploits this variability in the coverage of the legislation between formal- and informal-sector workers together with the temporal change in the Colombian legislation to identify the effects of a reduction in firing costs on the exit rates out of employment and out of unemployment.

Keywords: firing costs; unemployment; job security regulation; Colombian labor market; market reforms; informal sector; legislation

Chapter.  16999 words.  Illustrated.

Subjects: Company and Commercial Law

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