The effects of the national setting on employment practice: The case of downsizing

Although there is now a sizeable body of academic literature that tries to explain cross-country differences in terms of corporate control, capital market development, investor protection and politics, there is as yet very little literature on the degrees of protection accorded to other corporate stakeholders such as employees, based on a systematic comparison of firm level evidence. We find that both theories of legal origin and the varieties of capitalism approach are poor predictors of the relative propensity of firms to make redundancies in different settings. However, the political orientation of the government in place and even more so the nature of the electoral system are relatively good explanators of this propensity. In other words, political structures and outcomes matter more than more rigid institutional features such as legal origin. We explore the reasons for this, drawing out the implications for both theory and practice.

► This paper studies the protection granted to employees, as corporate stakeholders.
► It is one of the few studies using international, firm level data.
► Legal origin and varieties of capitalism approaches are poor predictors of the propensity to make redundancies.
► The government's political orientation of and more so the type of electoral system are good predictors of this propensity.