Despite stringent dismissal restrictions in most European countries, rates of job creation and destruction are remarkably similar in European and North American labor markets. This paper shows that relative-wage compression is conducive to higher employer-initiated job turnover, and argues that wage-setting institutions and job-security provisions differ across countries in ways that are both consistent with rough uniformity of job turnover statistics and readily explained by intuitive theoretical considerations. When viewed as a component of the mix of institutional differences in Europe and North America, European dismissal restrictions are essential to a proper interpretation of both similar patterns in job turnover and marked differences in unemployment flows.
Presentation at a Seminar held by the authors at the Research Department of the Bank of Italy, 23 January 1996.
