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The Analysis of Employment Protection Legislation’s Effects on the Industrial firms’ Speed of Adjustment

Aghazadeh, Milad | 2013

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 51652 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Nili, Masoud
  7. Abstract:
  8. The constitution's effect on economy’s performance is a complex and interesting issue. In the labor market economy, The Employment protection legislation (EPL) beside the minimum wage are two important constitutions that considerably determine the main features of the market and affects the efficiency of the economy. The EPL’s strictness varies between different countries and as many argue, it is the main factor that describes the already difference between north American and southern Europe countries labor markets. In this research, the EPL’s influence on speed of adjustment in manufacturing sector of different countries was studied. To analyze the manufacturing sector, labor demand functions in a panel Error Correction model (ECM) studied by the economics’ data of 8 main industries for 58 countries since 1980 from the UNIDO data base. The utilized stationary tests and cointegraion estimators of the panel data were from literatures mostly debated after 2005. Many studies proposed appropriate indexes to determine the strictness of EPL. this research was conducted using OECD index to determine the effects of the EPL’s strictness on the speed of adjustment of industries. The results clearly show that the EPL decreases flexibility of manufacturing sector for different countries with different levels of development and that the labor-intensive industries and the industries with higher wage rates are more sensitive to the constitution. In addition, the results argue that the EPL is more important in describing the developing countries performance in compare to developed ones. The data for manufacturing sector with 2 digit ISIC codes for the Iranian industries since 1979 to 2008 were used to study the influence of EPL change in 1991 on the manufacturing sector’s speed of adjustment. Moreover, the effect of size and ownership on the industries’ speed of adjustment was examined. The results show that Iranian EPL change in 1991 has had a significant role in decreasing the speed of adjustment in the manufacturing sector of Iran. Furthermore, the results show that government ownership in the manufacturing sector has been one of the main factors in creating the Iranian labor market rigidity and poor performance for the industrial sector and indicates that as the firms become larger, their speed of adjustment become smaller
  9. Keywords:
  10. Employment Protection Legislation (EPL) ; Labor Market ; Adjustment Industries Speed ; Vector Error Correction Model

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