Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia
Employment protection legislation in Croatia is among the most strict in Europe. Firing is difficult and costly, and flexible forms of employment are limited. Is this apparent rigidity reflected-as one would expect based on standard economic theory...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/08/2487581/strict-employment-protection-discourage-job-creation-evidence-croatia http://hdl.handle.net/10986/18129 |
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okr-10986-181292021-04-23T14:03:41Z Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia Rutkowski, Jan JOB CREATION EMPLOYMENT SECURITY LEGISLATIVE FRAMEWORK TERMINATION LABOR MARKET CHARACTERISTICS JOB SECURITY REGULATION JOB VACANCIES EMPLOYMENT OPPORTUNITIES WAGE LEVELS LABOR PRODUCTIVITY UNEMPLOYMENT BENEFIT SYSTEMS TAXATION EMPLOYMENT SKILLS MARKET LIBERALIZATION ACCOUNTING ALLOCATIVE EFFICIENCY BARRIERS TO ENTRY DISMISSAL DURATION ECONOMIC GROWTH ECONOMIC WELFARE EMPLOYERS EMPLOYMENT EMPLOYMENT GROWTH ENTITLEMENTS FIRING FLEXIBLE FORMS OF EMPLOYMENT HIGH UNEMPLOYMENT HIRING HUMAN DEVELOPMENT INSURANCE JOB CREATION JOB SECURITY JOB SEEKERS JOB VACANCIES JOBS LABOR COSTS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKETS LABOR PRODUCTIVITY LABOR SUPPLY LABOR TURNOVER LABOUR LABOUR FORCE LEGISLATION MARKET ECONOMIES MEDIATION NEW ENTRANTS PAYMENT IN KIND PRODUCTIVITY PRODUCTIVITY GROWTH REAL WAGES RECOMMENDATIONS RETIREMENT SOCIAL SECURITY STRUCTURAL UNEMPLOYMENT TAXATION TERMINATION TRANSITION ECONOMIES UNEMPLOYED UNEMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT BENEFITS UNEMPLOYMENT RATE UNPAID FAMILY WORKERS WAGES MARKET LIBERALIZATION ACCOUNTING Employment protection legislation in Croatia is among the most strict in Europe. Firing is difficult and costly, and flexible forms of employment are limited. Is this apparent rigidity reflected-as one would expect based on standard economic theory-in low labor market dynamics? Is job creation low and hiring limited? Is the job security of insiders achieved at the cost of outsiders not being able to enter the labor market? The author attempts to answer these questions by examining job flows. If the employment protection legislation is binding, then job and worker turnover should be low. He shows that this is indeed the case. Hiring is limited and the average job tenure is very long in Croatia. Job destruction is low, however job creation is still lower. The result is accumulation of unemployment, in large part due to new labor market entrants not being able to find a job. The high degree of job protection also seems to strengthen the bargaining position of insiders and results in relatively high wages. So, wages in Croatia are higher than among its competitors, even after adjusting for productivity. These high labor costs are likely to contribute to limited job creation in existing firms, but also are likely to discourage the entry of-and thus job creation in-new firms. The author presents evidence that firm growth has been indeed limited in Croatia, contributing to the low employment level. The author examines other potential causes of high unemployment in Croatia (the unemployment benefit system, labor taxation, the wage structure, and skill and spatial mismatches). He argues that they do not play a substantial part in accounting for poor labor market outcomes in Croatia. The author concludes that the stringent employment protection legislation is the key labor market institution behind low job creation and high unemployment. Based on this he recommends specific measures aimed at liberalizing the labor market to foster job creation and employment. 2014-05-01T18:41:57Z 2014-05-01T18:41:57Z 2003-08 http://documents.worldbank.org/curated/en/2003/08/2487581/strict-employment-protection-discourage-job-creation-evidence-croatia http://hdl.handle.net/10986/18129 English en_US Policy Research Working Paper;No. 3104 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia Croatia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
JOB CREATION EMPLOYMENT SECURITY LEGISLATIVE FRAMEWORK TERMINATION LABOR MARKET CHARACTERISTICS JOB SECURITY REGULATION JOB VACANCIES EMPLOYMENT OPPORTUNITIES WAGE LEVELS LABOR PRODUCTIVITY UNEMPLOYMENT BENEFIT SYSTEMS TAXATION EMPLOYMENT SKILLS MARKET LIBERALIZATION ACCOUNTING ALLOCATIVE EFFICIENCY BARRIERS TO ENTRY DISMISSAL DURATION ECONOMIC GROWTH ECONOMIC WELFARE EMPLOYERS EMPLOYMENT EMPLOYMENT GROWTH ENTITLEMENTS FIRING FLEXIBLE FORMS OF EMPLOYMENT HIGH UNEMPLOYMENT HIRING HUMAN DEVELOPMENT INSURANCE JOB CREATION JOB SECURITY JOB SEEKERS JOB VACANCIES JOBS LABOR COSTS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKETS LABOR PRODUCTIVITY LABOR SUPPLY LABOR TURNOVER LABOUR LABOUR FORCE LEGISLATION MARKET ECONOMIES MEDIATION NEW ENTRANTS PAYMENT IN KIND PRODUCTIVITY PRODUCTIVITY GROWTH REAL WAGES RECOMMENDATIONS RETIREMENT SOCIAL SECURITY STRUCTURAL UNEMPLOYMENT TAXATION TERMINATION TRANSITION ECONOMIES UNEMPLOYED UNEMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT BENEFITS UNEMPLOYMENT RATE UNPAID FAMILY WORKERS WAGES MARKET LIBERALIZATION ACCOUNTING |
| spellingShingle |
JOB CREATION EMPLOYMENT SECURITY LEGISLATIVE FRAMEWORK TERMINATION LABOR MARKET CHARACTERISTICS JOB SECURITY REGULATION JOB VACANCIES EMPLOYMENT OPPORTUNITIES WAGE LEVELS LABOR PRODUCTIVITY UNEMPLOYMENT BENEFIT SYSTEMS TAXATION EMPLOYMENT SKILLS MARKET LIBERALIZATION ACCOUNTING ALLOCATIVE EFFICIENCY BARRIERS TO ENTRY DISMISSAL DURATION ECONOMIC GROWTH ECONOMIC WELFARE EMPLOYERS EMPLOYMENT EMPLOYMENT GROWTH ENTITLEMENTS FIRING FLEXIBLE FORMS OF EMPLOYMENT HIGH UNEMPLOYMENT HIRING HUMAN DEVELOPMENT INSURANCE JOB CREATION JOB SECURITY JOB SEEKERS JOB VACANCIES JOBS LABOR COSTS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKETS LABOR PRODUCTIVITY LABOR SUPPLY LABOR TURNOVER LABOUR LABOUR FORCE LEGISLATION MARKET ECONOMIES MEDIATION NEW ENTRANTS PAYMENT IN KIND PRODUCTIVITY PRODUCTIVITY GROWTH REAL WAGES RECOMMENDATIONS RETIREMENT SOCIAL SECURITY STRUCTURAL UNEMPLOYMENT TAXATION TERMINATION TRANSITION ECONOMIES UNEMPLOYED UNEMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT BENEFITS UNEMPLOYMENT RATE UNPAID FAMILY WORKERS WAGES MARKET LIBERALIZATION ACCOUNTING Rutkowski, Jan Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia |
| geographic_facet |
Europe and Central Asia Croatia |
| relation |
Policy Research Working Paper;No. 3104 |
| description |
Employment protection legislation in
Croatia is among the most strict in Europe. Firing is
difficult and costly, and flexible forms of employment are
limited. Is this apparent rigidity reflected-as one would
expect based on standard economic theory-in low labor market
dynamics? Is job creation low and hiring limited? Is the job
security of insiders achieved at the cost of outsiders not
being able to enter the labor market? The author attempts to
answer these questions by examining job flows. If the
employment protection legislation is binding, then job and
worker turnover should be low. He shows that this is indeed
the case. Hiring is limited and the average job tenure is
very long in Croatia. Job destruction is low, however job
creation is still lower. The result is accumulation of
unemployment, in large part due to new labor market entrants
not being able to find a job. The high degree of job
protection also seems to strengthen the bargaining position
of insiders and results in relatively high wages. So, wages
in Croatia are higher than among its competitors, even after
adjusting for productivity. These high labor costs are
likely to contribute to limited job creation in existing
firms, but also are likely to discourage the entry of-and
thus job creation in-new firms. The author presents evidence
that firm growth has been indeed limited in Croatia,
contributing to the low employment level. The author
examines other potential causes of high unemployment in
Croatia (the unemployment benefit system, labor taxation,
the wage structure, and skill and spatial mismatches). He
argues that they do not play a substantial part in
accounting for poor labor market outcomes in Croatia. The
author concludes that the stringent employment protection
legislation is the key labor market institution behind low
job creation and high unemployment. Based on this he
recommends specific measures aimed at liberalizing the labor
market to foster job creation and employment. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Rutkowski, Jan |
| author_facet |
Rutkowski, Jan |
| author_sort |
Rutkowski, Jan |
| title |
Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia |
| title_short |
Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia |
| title_full |
Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia |
| title_fullStr |
Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia |
| title_full_unstemmed |
Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia |
| title_sort |
does strict employment protection discourage job creation? evidence from croatia |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2003/08/2487581/strict-employment-protection-discourage-job-creation-evidence-croatia http://hdl.handle.net/10986/18129 |
| _version_ |
1764438933021655040 |