Labor Disputes and Labor Flows

About one in four workers challenges her dismissal in front of a labor court in France. Using adata set of individual labor disputes brought to French courts over the years 1996 to 2003,we examine the impact of labor court activity on labor market flows. First, we present asimple theoretical model showing the links between judicial costs and judicial case outcomes.Second, we exploit our model as well as the French institutional setting to generateinstruments for these endogenous outcomes. In particular, we use shocks in the supply oflawyers who resettle close to their university of origin. Using these instruments, we show thatlabor court decisions have a causal effect on labor flows. More trials and more cases won bythe workers cause more job destructions. More settlements, higher filing rates, and a largerfraction of workers represented by a lawyer dampen job destructions. Various robustnesschecks confirm these findings....