Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia

Rutkowski, Jan

World Bank, Washington, DC

关键词: JOB CREATION;    EMPLOYMENT SECURITY;    LEGISLATIVE FRAMEWORK;    TERMINATION;    LABOR MARKET CHARACTERISTICS;   

DOI  :  10.1596/1813-9450-3104
RP-ID  :  WPS3104

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Employment protection legislation inCroatia is among the most strict in Europe. Firing isdifficult and costly, and flexible forms of employment arelimited. Is this apparent rigidity reflected-as one wouldexpect based on standard economic theory-in low labor marketdynamics? Is job creation low and hiring limited? Is the jobsecurity of insiders achieved at the cost of outsiders notbeing able to enter the labor market? The author attempts toanswer these questions by examining job flows. If theemployment protection legislation is binding, then job andworker turnover should be low. He shows that this is indeedthe case. Hiring is limited and the average job tenure isvery long in Croatia. Job destruction is low, however jobcreation is still lower. The result is accumulation ofunemployment, in large part due to new labor market entrantsnot being able to find a job. The high degree of jobprotection also seems to strengthen the bargaining positionof insiders and results in relatively high wages. So, wagesin Croatia are higher than among its competitors, even afteradjusting for productivity. These high labor costs arelikely to contribute to limited job creation in existingfirms, but also are likely to discourage the entry of-andthus job creation in-new firms. The author presents evidencethat firm growth has been indeed limited in Croatia,contributing to the low employment level. The authorexamines other potential causes of high unemployment inCroatia (the unemployment benefit system, labor taxation,the wage structure, and skill and spatial mismatches). Heargues that they do not play a substantial part inaccounting for poor labor market outcomes in Croatia. Theauthor concludes that the stringent employment protectionlegislation is the key labor market institution behind lowjob creation and high unemployment. Based on this herecommends specific measures aimed at liberalizing the labormarket to foster job creation and employment.