ECON 3039

Labor Economics2015-16

By Elliott FanEconomics, NTU

Elliott Fan: Labor 2015 Fall Lecture 11 1

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

• “The Effects of Employment Protection on Labor Turnover: Empirical Evidence from Taiwan,” Economic Inquiry, 49, 398–433.

• The paper explored the effect on labor turnovers of the introduction of Labor Standards Law, which has substantially increased the costs of firing.

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

• Taiwan’s LSL attempts to regulate all aspects of employment relationship, for example, labor contract, wage, overtime payments and hours, retirement and severance payments, compensations for occupational accidents, and maternity benefits.

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

Some of the LSL labor protection measures were new, for example, the prohibition of firing at will. • Firstly, employers have to give an advance notice before

dismissing an employee. • Secondly, LSL imposes a higher severance pay than

previous labor laws. • An employer can dismiss an employee only if the

business is closing down, suspended for more than 1 month, suffering from a loss, or when the employee is not able to perform the duties satisfactorily or violates the work rule.

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

Enforcement

• The poor enforcement of LSL has also contributed to the low compliance rate of LSL in the early years of its implementations.

• During the first 3 years of LSL’s enactment the Department of Labor of the Ministry of Interior was in charge of the enforcement of LSL. However, inspection and prosecution were carried out by a multitude of local labor agencies belonging to the Taiwan Provincial Government, the Taipei and Kaohsiung municipalities, and the Ministry of Economic Affairs.

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

• The industries covered by LSL include: (a) agriculture, forestry, fishing, and animal husbandry; (b) mining and quarrying; (c) manufacturing; (d) electricity, gas, and water; (e) construction; (f) transportation, storage, and communication; and (g) mass media.

• The industries not covered by LSL belong to the service sector: (a) retail and wholesale; (b) hotels and restaurants; (c) commerce; (d) finance, insurance and real estate; (e) business services; (f) social, personal, and related community services; and (g) public administration.

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

Definitions:

Rate of hiring:

HRATEit = (HIREit /EMPit−1) × 100

Rate of separating:

SRATEit = (SEPARATEit /EMPit−1) × 100Worker flow:

WFLOWit = (HIREit + SEPARATEit /EMPit−1) × 100Job reallocation rate:

JREALLOCit = (| EMPit − EMPit−1|/EMPit−1) ×100,= (| JCit − JDit |/EMPit−1) × 100,

= (| HIREit − SEPARATEit |/EMPit−1)×100

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11

Difference-in-difference

• First layer: time (three timings)

• Second layer: being covered by LSL

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DD Example: Kan and Lin (2011)

Elliott Fan: Labor 2015 Fall Lecture 11