Better Protected, Better Paid: Evidence on How Employment Protection Affects Wages

31 Pages Posted: 23 May 2008

See all articles by Karen van der Wiel

Karen van der Wiel

CPB Netherlands Bureau of Economic Policy Analysis

Abstract

This paper empirically establishes the effect of the employer's term of notice on the wage level of employees. The term of notice is defined as the period an employer has to notify workers in advance of their upcoming dismissal. The wages paid during this period are an important element of firing costs and hence employment protection. To find a causal effect, I exploit the exogenous change in the term of notice that resulted from the introduction of a new Dutch law in 1999. Strong evidence is found that a longer 'dormant' term of notice leads to higher wages. In my sample, an additional month of notice increases wages by three percent, ceteris paribus.

Keywords: employment protection, term of notice, wages

JEL Classification: C23, J31, J38, J63

Suggested Citation

van der Wiel, Karen, Better Protected, Better Paid: Evidence on How Employment Protection Affects Wages. IZA Working Paper No. 3352, Available at SSRN: https://ssrn.com/abstract=1135928 or http://dx.doi.org/10.2139/ssrn.1135928

Karen Van der Wiel (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

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