Churning and institutions: Dutch and German establishments compared with micro-level data

Often the high level of unemployment in Germany is explained by a lack of flexibility, over-regulation in the labour market and disincentives of the social security system. However, these institutional effects are difficult to test by means of data from only one country. Cross-country comparisons are hindered by the availability of comparable datasets, especially at the establishment level. The comparative analysis of labour markets with different degrees of flexibility, regulation, and social security systems will show the importance of these institutions for the mobility of individuals. In this paper we will estimate regressions - almost identically specified - using establishment datasets from Germany and the Netherlands. We do not only analyse the process of hiring and firing, but also the extent to which they occur simultaneously. Churning can be regarded as the part of hiring which occurs above the level of replacement of separations. Our results show that German establishments have significantly lower churning rates than their Dutch counterparts. To some extent this can be explained by a different economic situation and a different age-structure of the working population. Important labour market institutions exerting some influence on churning appear to be: the share of fixed term contracts in total employment (higher in the Netherlands), the German apprenticeship system, and the German works councils.