Abstract
This paper examines how obstacles in access to finance, labour regulations, and employment quality affect employment growth and the permanent worker ratio at the firm level. Using firm-level data of 11,691 firms in 33 low-income and middle-income countries in Europe and Central Asia, where unemployment rates are the highest worldwide, this paper demonstrates that access to finance and employment quality obstacles hinder employment growth. The paper also shows that the greater the obstacles in access to finance and labour regulations, the lower the permanent worker ratio. The findings are robust when applying a two-stage least-squares method to address endogeneity issues. Furthermore, quantile regression analysis shows that access to finance obstacles impede the lowest-growth firms the most and the highest-growth firms the least. Our results indicate that significant financial and regulatory reforms are needed to spur sustainable employment growth.
Highlights
Firm Employment: Evidence fromThe literature on business obstacles has examined how they affect firms’ growth and decisions
This paper explores the effect of access-to-finance obstacles, labour regulations, and employment quality obstacles on employment growth and the permanent worker ratio
The instrumental variables (IVs) estimates show that access-to-finance obstacles hinder employment growth and the impact is statistically significant
Summary
Firm Employment: Evidence fromThe literature on business obstacles has examined how they affect firms’ growth and decisions. The current literature indicates that obstacles in access to finance, labour regulation, and employment quality have a direct impact on employment decisions at the firm level. [7,8] have reported a positive impact of labour market liberalisation on employment growth and the use of permanent workers at the firm level. It is important to examine how labour regulation obstacles at the firm level affect employment growth and the permanent worker ratio. The current literature has been heavily focused on barriers to employment growth and labour structure with regard to access to finance, but have largely ignored the impact of labour regulation and the quality of labour at the firm level on employment decisions. This paper contributes to the literature by exploring how labour regulation and employment quality obstacles affect employment growth and the permanent worker ratio at the firm level
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