Abstract

High dismissal costs create an incentive for employers to screen newly hired employees more intensively as compared with a situation where employers incur only low firing costs. This may, in turn, have implications for the quality of new employer-employee matches. In this study, we empirically test the hypothesis that high dismissal costs improve the quality of employer-employee matches, by raising the intensity with which employers screen new hires. We exploit variations in dismissal costs that arise from differences in hiring and training costs as well as from exogenous changes in the German employment protection legislation. The data we use in our empirical analysis stem from the IAB Job Vacancy Survey and the Integrated Employment Biographies of the Federal Employment Agency.