January 2024

IZA DP No. 16747: Employment Protection Legislation and Job Reallocation across Sectors, Firms and Workers: A Survey

This paper provides a review of the existing literature on the effects of employment protection legislation (EPL) on job allocation across industries, firms, and workers, and its implications for innovation and economic growth. We analyze empirical studies to assess how EPL influences resource allocation, firm dynamics, and labor market segmentation. The review highlights the heterogeneous effects of EPL on different firms and workers' groups. Additionally, we discuss the channels identified in the structural literature through which EPL-induced job reallocation affects productivity, innovation, and overall growth. While existing evidence demonstrates the significant influence of EPL on all these outcomes, further quantification of these effects remains a research challenge.