Employment protection and productivity: Evidence from firm-level panel data in Japan

H. Okudaira, M. Takizawa, K. Tsuru

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms' production decisions or workers' commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms' total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs.

Original languageEnglish
Pages (from-to)2091-2105
Number of pages15
JournalApplied Economics
Issue number15
Publication statusPublished - 2013 May
Externally publishedYes


  • capital substitution
  • employment protection
  • firing cost
  • total factor productivity

ASJC Scopus subject areas

  • Economics and Econometrics


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