Assessing The Impact Of Labour Market Policies On Productivity: A Difference-In-Differences Approach

The impact of four labour market policies - employment protection legislation, minimum wages, parental leave and unemployment benefits - on productivity is examined here, using annual cross-country aggregate data on these policies and industry-level data on productivity from 1979 to 2003. The authors use a "Difference-in-differences" framework, which exploits likely differences in the productivity effect of policies in different industries. The identifying assumption is that a specific policy influences worker or firm behaviour, and thereby productivity, more in industries where the policy in question is likely to be more binding than in other industries.