Employment Protection Laws and Privatization

AbstractIs privatization in a country related to the stringency of its employment protection laws (EPLs)—and, if so, how? We address these questions using privatization deals in 14 European countries over 3 decades and the changes in EPLs in a country. Using traditional difference-in-differences tests exploiting major changes and generalized difference-in-differences tests for the full sample, we find that stringent EPLs discourage privatization. For identification, we use two sets of triple-difference tests that control for country-level omitted variables using fixed effects for each country-year pair. First, using cross-sectional differences across industries in a country, we find that the effect of EPLs on privatization is disproportionately greater in industries in which separation rates and relocation rates are higher. Second, using productivity measures for US industries as an instrument, we find that the effect of EPLs on privatization is disproportionately greater in less productive industries.