The Implications of Changing Employment Protection: Evaluating the 1999 UK Unfair Dismissal Reform

Veronica Toffolutti
University of Padua, Italy

The empirical results on the net impact of job security provision on employment have not been conclusive. Using the UK Labour Force Survey from 1997 to 2001, this paper examines the impact of the 1999 British Unfair Dismissal Reform on firms firing behaviour. Combining treatment evaluation techniques, namely Difference-in-Differences and Regression Discontinuity Design, with survival techniques our results show consistently that the probationary period shortening, occurred during the reform, led to a significant decrease in the probability of being laid off amounting to 1% just for the newly covered - i.e. those workers whose tenure is between 12 and 24 months, even though, the new probationary period threshold is found to be not significant. Looking at the effects of the reform on manufacturing, our evidence shows that shortening the probationary period increases the probability of being dismissed for those whose tenure is lower than 12 months. Aiming at evaluating whether this pattern was driven by a particular compositional effect we split white from blue collar workers. Our evidence supports the thesis that the effect of the reform is heterogeneous across skills.

View full paper