Measuring firing costs: the case for direct methods
Firing costs, together with the legislative and regulatory frameworks governing employment relations, are often blamed for poor labour market outcomes. Yet, in the US as elsewhere in the OECD, theoretical and econometric research on the economic impacts of these costs is inconclusive. There has been much focus on functional assumptions and the significance of parameters, but very little on the quality and precision of the cost measures upon which most results hinge. In this article, I review the indirect and direct measurement methods commonly used in the field, and argue that direct quantitative methods, rarely used in existing research, are much needed to complement more popular indirect measures. This core premise is illustrated by a recent survey experiment conducted in Australia.