In a new paper, Dinara Alpysbayeva and Stijn Vanormelingen (KU Leuven) show and quantify the extent of labor misallocation induced by stricter employment protection legislation in Belgium.
Using a recent policy change in Belgium, harmonization of labor contracts leading to increased employment protection for blue-collar workers and a decrease in employment protection for white-collar workers, the authors show that the reform decreased the allocative efficiency of labor in blue-collar intensive firms compared to white-collar intensive firms. The evidence shows that a firm with 90% blue-collar workers experienced a 3300 euro increase in productivity loss relative to a 10% blue-collar-workers firm following the policy change.
The study highlights the importance of labor market institutions and policy changes that affect labor market decisions for improving productivity at the firm level.
The article is called «Labor market rigidities and misallocation: Evidence from a natural experiments» and is published in Labour Economics.
Read the full article here.
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