Employment Protection Legislation and SME Performance

This study examines the effect of employment protection legislation (EPL) on small and medium-sized firm performance. Instead of relying on country specific proxies for EPL as is common in the literature, we compute company-specific measures of a firm’s exposure to EPL using a panel dataset of 13,112 Belgian SMEs between 2000 and 2009. The empirical results show that firms particularly perform better when they are faced with less hiring and firing costs by making use of more blue-collar labour contracts. The evidence showing improved performance within firms that attempt to be more flexible by hiring more temporary workers is limited.status: publishe