On-the-job training and rigidity of employment protection in the developing world: Evidence from differential enforcement

This paper analyzes the causal effect between strict employment protection regulations and the firm incentive to invest in job training of their employees. We explore a large firm level data set across several developing countries and assume that the rigidity of labor regulations affects more the investment decision of firms that faces a rigid enforcement of labor regulations. Our findings show that differences across countries in the enforcement of more rigid employment protection regulation are associated with very small differences in the investment in job training across firms. This finding is robust across several specifications and samples.

► We investigate the role of employment protection regulations on the incentives to invest in job training using a firm level data across 64 countries.
► We explore the differential effect of labor regulations for firms exposed to different degrees of enforcement of the de jure labor regulations.
► We show that reforms in the employment protection regulation increasing the diffusion of temporary contracts and the protection of regular workers likely reduce the investment in job training.