The Effects of Hiring and Firing Regulation on Unemployment and Employment: Evidence Based on Survey Data

Abstract

We use the results of surveys among senior business executives to measure the strictness of hiring and firing regulations. The survey data are more likely than objective indicators (used in almost all previous studies) to correctly capture the de facto strictness of these regulations and their relevance to the performance of the labor market. Using data from 19 industrial countries for the period 1992 to 2002, we find that more flexible regulations are likely to lower unemployment and to increase employment rates. While the effects on the general population appear to be modest, the effects on female, young and low-skilled workers seem to be substantial.