Employment protection and gender gap

Abstract

Purpose The purpose of this paper is to evaluate the impact of more stringent Employment Protection Legislation on employment outflows and wages of women compared to those of men. Design/methodology/approach The authors exploit the Italian labor market reform of 1990 that raised firing costs for firms with less than 15 employees leaving unchanged existing rules for larger firms. The authors setup a natural experiment using this firm size threshold to examine if an increase of severance pay in small relative to large firms has a different impact on labor flows and earnings by gender. Using administrative linked employer–employee data, the authors find a significant reduced flow out of employment of women with respect to men in small relative to large firms after 1990. Findings The results also indicate a reduction of the gender wage gap after the reform of about 1.5 percent. These findings are statistically significant for women in fertility age and disappear if we consider older women. Originality/value The findings are consistent with the idea that employment protection may help in reducing gender disparities.