THE EFFECTS OF EMPLOYMENT PROTECTION ON LABOR TURNOVER: EMPIRICAL EVIDENCE FROM TAIWAN

This paper investigates the effects of employment protection legislation on the rates of hiring, separation, worker flows, job reallocation, and churning flows for the case of Taiwan. Our empirical identification takes advantage of a reform created by Taiwan's enactment of Labor Standards Law, which has substantially increased the costs of firing, and the implementation of the law's enforcement measures. Moreover, our identification also exploits the fact that the stringency of the law's provisions and the intensity of the law's enforcement vary with establishment size. On the basis of the monthly data at the establishment level for the period 1983–1995, we find that Taiwan's Labor Standards Law and its enforcement measures have dampened labor turnover for medium‐sized and large establishments, while that of small establishments was not affected. (JEL J65, J63, J88)