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How Does Employment Protection Legislation Influence Hiring and Firing Decisions by the Smallest Firms?

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Executive Summary

This paper examines the impact of Employment Protection Legislation (EPL) on hiring decisions by own-account workers and firing decisions by very small firms (1-4 employees). Using data from the EU-15 countries, the authors' results show that the strictness of employment protection legislation is negatively related to both these types of decisions, and hence, to labor mobility among the smallest firms. This new evidence may be useful for governments aiming to create a more enabling macro-environment for employment and productivity growth.

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