OECD Social, Employment and Migration Working Papers
This series is designed to make available to a wider readership selected labour market, social policy and migration studies prepared for use within the OECD. Authorship is usually collective, but principal writers are named. The papers are generally available only in their original language - English or French - with a summary in the other.
- ISSN: 1815199X (online)
- https://doi.org/10.1787/1815199X
Assessing the Impact of Labour Market Policies on Productivity
A Difference-in-Differences Approach
The impact of four labour market policies – employment protection legislation, minimum wages,
parental leave and unemployment benefits – on productivity is examined here, using annual cross-country
aggregate data on these policies and industry-level data on productivity from 1979 to 2003. We use a
"difference-in-differences" framework, which exploits likely differences in the productivity effect of
policies in different industries. Our identifying assumption is that a specific policy influences worker or
firm behaviour, and thereby productivity, more in industries where the policy in question is likely to be
more binding than in other industries. The advantage of this approach is twofold. First, as in standard
cross-country analysis, we can exploit the cross-country variation of policies. Second, in contrast with
standard cross-country analysis, we can control for unobserved factors that, on average, are likely to have
the same effect on productivity in both policy-binding and non-binding industries.
JEL:
J08: Labor and Demographic Economics / General / Labor Economics Policies;
J24: Labor and Demographic Economics / Demand and Supply of Labor / Human Capital; Skills; Occupational Choice; Labor Productivity;
O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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