Showing papers on "Employment protection legislation published in 2006"

Assessing Job Flows across Countries: The Role of Industry, Firm Size, and Regulations*

Abstract: This paper reviews the process of job creation and destruction across a sample of 16 industrial and emerging economies over the past decade. It exploits a harmonized firm-level data set drawn from business registers and enterprise census data. The paper assesses the importance of technological factors that characterize different industries in explaining cross-country differences in job flows. It shows that industry effects play an important role in shaping job flows at the aggregate level. Even more importantly, differences in the size composition of firms-within each industry-explain a large fraction of the overall variability in job creation and destruction. However, even after controlling for industry/technology and size factors there remain significant differences in job flows across countries that could reflect differences in business environment conditions. The authors look at one factor shaping the business environment, namely, regulations on hiring and firing of workers. To minimize possible endogeneity and omitted variable problems associated with cross-country regressions, we use a difference-in-difference approach. The empirical results suggest that stringent hiring and firing costs reduce job turnover, especially in those industries that require more frequent labor adjustment. Regulations also distort the patterns of industry/size flows. Within each industry, medium and large firms are more severely affected by stringent labor regulations, while small firms are less affected, probably because they are partially exempted from such regulations or can more easily circumvent them.

The Economic Effects of Employment Protection Legislation: Evidence from International Industry-level Data

Abstract: This paper examines the economic effects of employment protection legislation in a sample of developed and developing countries By implementing a difference-in-differences test, we lessen the potentially severe endogeneity and omitted variable problems associated with cross-country regressions This test is based on the hypothesis that employment protection regulations are more binding in sectors of activity exposed to higher volatility in demand or supply shocks Our analysis indicates that more stringent legislation slows down job turnover by a significant amount, and that this effect is more pronounced in sectors that are intrinsically more volatile We also find that employment and value added in the most affected sectors decline Employment and output effects are driven by a decline in the net entry of firms In contrast, average employment per plant is not significantly affected

The Effects of Employment Protection and Product Market Regulations on the Italian Labour Market

Abstract: The group of contributors in this book come from academia and international organizations in Europe and the USA They focus on trade unions, which affect real-wage flexibility and the provision of training to workers They also concentrate on employment protection legislation, which discourages firms from firing old workers and also from hiring new ones The structure of housing market imperfections that can greatly affect regional mobility is also discussed

The Effect of Home-Ownership on Labour Mobility in the Netherlands

Abstract: The group of contributors in this book come from academia and international organizations in Europe and the USA. They focus on trade unions, which affect real-wage flexibility and the provision of training to workers. They also concentrate on employment protection legislation, which discourages firms from firing old workers and also from hiring new ones. The structure of housing market imperfections that can greatly affect regional mobility is also discussed.

Personnel Economics in Imperfect Labour Markets

Abstract: 1. Preface 2. Personnel Economics and Non-Competitive Labour Markets 3. The Optimal Skill Ratio 4. The Hours-Employment Trade-Off 5. Temporary or Permanent? 6. Managing Adverse Selection in Recruiting 7. Optimal Compensation Schemes 8. Pay for Performance with Wage Constraints 9. Further Issues in Compensation 10. Training and Human Capital Investment 11. Training Investment in Imperfect Labour Markets 12. Job Destruction 13. Further Issues in Employment Protection Legislation 14. Teams and Group Incentives Appendices

The Institutional Determinants of Early Retirement in Europe

Abstract: Low fertility rates combined with increases in early retirement pose a serious challenge to the sustainability of social security systems in most industrialized countries Therefore, it is important for policy makers to understand the determinants of early retirement and especially the role that institutional factors play in the retirement decision However, analyzing such factors ideally requires international microdata, which have in the past been largely unavailable To fill this void, this paper investigates early retirement determinants across several European countries using the rich 2005 SHARE (Survey of Health, Aging and Retirement in Europe) microdataset, which produces more precise estimates of the effects of institutional and economic factors like pension systems, unemployment, and employment protection legislation The analysis shows that pension systems offering generous early retirement options encourage early departure from the labor market In addition, pension wealth accrual rate exerts a greater influence on early retirement decisions than does the average replacement rate, while stricter employment protection legislation has no significant impact

Labor Market Characteristics and Cross-Country Differences in Cost Stickiness

Abstract: This paper studies the impact of country-specific labor market characteristics on the degree of asymmetric cost behavior (i.e., cost stickiness) of firms' operating expense. We hypothesize that four important aspects of a labor market, namely, the overall bargaining power of trade unions, the extent of centralization and coordination in collective bargaining, the level of unemployment benefits, and the strictness of employment protection legislation, affect the flexibility of firms in adjusting labor resources and wage rates, hence driving the amount of cost changes as total activity levels change. Using a large cross-sectional sample of firms from nineteen OECD countries over the most recent 10-year period 1996-2005, we find that the cross-country variations in cost stickiness in operating expense are significantly associated with these labor market characteristics as expected, after controlling for firm-level determinants of cost stickiness,. Our results indicate that labor market structure and polices are important determinants of cost stickiness.

Euro-Productivity and Euro-Jobs Since the 1960s: Which Institutions Really Mattered?

Abstract: How have labor market institutions and welfare-state transfers affected jobs and productivity in Western Europe, relative to industrialized Pacific Rim countries? Orthodox criticisms of European government institutions are right in some cases and wrong in others. Protectionist labor-market policies such as employee protection laws seem to have become more costly since about 1980, not through overall employment effects, but through the net human-capital cost of protecting senior male workers at the expense of women and youth. Product-market regulations in core sectors may also have reduced GDP, though here the evidence is less robust. By contrast, high general tax levels have shed the negative influence they might have had in the 1960s and 1970s. Similarly, other institutions closer to the core of the welfare state have caused no net harm to European jobs and growth. The welfare state%u2019s tax-based social transfers and coordinated wage bargaining have not harmed either employment or GDP. Even unemployment benefits do not have robustly negative effects.

Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection and Workfare

Abstract: A central concern in economics is to understand the interplay between institutions and labor markets. In this paper we argue that laboratory experiments are a powerful tool for studying labor market institutions. One of the most important advantages is the ability to implement truly exogenous institutional change, in order to make clear causal inferences. We exemplify the usefulness of lab experiments by surveying evidence from three studies, each of which investigates a different, crucial labor market institution: minimum wage laws, employment protection legislation and workfare.

Choosing a System of Unemployment Income Support: Guidelines for Developing and Transition Countries

Abstract: Mounting evidence suggests that excessive job protection reduces employment and labor market flows, hinders technological innovations, pushes workers into the informal sector, and hurts vulnerable groups by depriving them of job opportunities. Flexible labor markets stimulate job creation, investment, and growth, but they create job insecurity and displace some workers. How can the costs of such insecurity and displacements be minimized while ensuring that the labor market remains flexible? Each of the main unemployment income support systems (unemployment insurance, unemployment assistance, unemployment insurance savings accounts, severance pay, and public works) has strengths and weaknesses. Country-specific conditions, chief among them labor market and other institutions, the capacity to administer each type of system, and the size of the informal sector, determine which system is best suited to developing and transition countries.

The Effect of Home-Ownership on Labour Mobility in the Netherlands

Abstract: The group of contributors in this book come from academia and international organizations in Europe and the USA. They focus on trade unions, which affect real-wage flexibility and the provision of training to workers. They also concentrate on employment protection legislation, which discourages firms from firing old workers and also from hiring new ones. The structure of housing market imperfections that can greatly affect regional mobility is also discussed.

Globalization and deregulation: Does flexicurity protect atypically employed? 1

Abstract: Hitherto, discussion of flexicurity has focused on normal employment (permanent full-time), with atypical work receiving only cursory attention. Nevertheless, the most affected are just atypically employed (= other than normally employed). To monitor effects of flexicurity policies in Europe, flexicurity indices are constructed from: (a) scores of the strictness of employment protection legislation provided by the OECD, (b) qualitative juridical data on social security benefits (unemployment insurance, public pensions, etc.), and (c) data on the dynamics of employment types (permanent, temporary, full-time, part-time, self-employed, etc.). The empirical investigation shows that, contrary to political promises and theoretical opinions, the deregulation of European labour markets absolutely predominates. Its moderate compensation by advantages in social security occurred only twice: in Denmark and Netherlands at the end of the 1990s. The flexibilization reduces the average employment status, i.e. employees are more often employed not permanently but temporarily, not full-time but part-time, and more frequently they involuntary turn to self-employment. On the other hand, the eligibility to social benefits depends on the employment status. Thereby these trends disqualify employees from social benefits. The apparent compensation of the labour market deregulation by social advantages is therefore insufficient.

Employment protection legislation; lessons from theoretical and empirical studies for the Dutch case

Abstract: Employment protection is a hotly debated topic In this document we review the theoretical and empirical studies on the impact of employment protection Subsequently, we confront the findings of these studies with the Dutch setup, and consider a number of reform options

Improving Labour Market Performance in France

Abstract: With high unemployment, low participation of specific groups such as the low-skilled and those nearing retirement age, and relatively low average hours worked, France is far from using its full labour potential. Improving the labour market situation would not only increase living standards and growth potential but also reduce social exclusion and ease pressures on public spending. This paper analyses various characteristics of the French labour market that may explain the low utilisation of labour potential. It puts forward the need for a comprehensive reform of the labour market aiming at: i) shifting the burden of social protection in the labour market away from employers towards the state by reducing and streamlining employment protection legislation; ii) removing incentives that lead to early withdrawal from the labour market; iii) allowing employers and employees more freedom to negotiate working hours; and iv) improving efficiency in job placement services.

Labour Market Flexibility

Abstract: Acceptance of the existence of a supply-side determined equilibrium rate of unemployment by Third Way economists implies both a rejection of Keynesian macroeconomic policies and a renewed emphasis upon supply-side interventions intended to promote market clearing through reducing imperfections, whilst modifying institutions and policies to promote productivity growth and higher rates of employment consistent with a low rate of inflation. Whereas ‘old monetarism’ perceived market imperfections as being associated with the activity of trade unions, the generosity of social security benefits and labour regulation (i.e. minimum wages, employment protection legislation), for ‘new monetarism’ the market failure is a lack of training and skills (Arestis and Sawyer, 1998: 37). In this scenario, the rate of employment is determined through the interaction of market forces in the labour market, and therefore the attempt to reduce unemployment should be located in this micro-market.

Institutions, unemployment and inactivity in the OECD countries

Abstract: This paper provides new evidence on the linkages between a large array of institutional arrangements (on product, labour and financial markets) and employment performance. Our analysis includes unemployment, inactivity and jobless rates, thus allowing us to control for possible substitution effects across situations of non-employment and to check whether institutional rigidities affecting unemployment impact inactivity along the same line. To cope with common problems related to the inclusion of time-invariant institutional variables in fixed effects models, we present results of regressions based on three different estimators: PCSE, GLS and FEVD, the last one being a new procedure specifically designed to treat slowly changing variables. New institutional series are proposed, namely to account for unemployment insurance net replacement rates and employment protection legislation (EPL). Among other results, we find strong evidence of a positive effect of EPL on employment performance as well as of possible complementarities across product and labour markets regulation.

The Political Economy of Flexicurity

Abstract: We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labor market risk. Different countries' locations along this trade-off represent stable, hard to modify, politico-economic equilibria. We develop a model in which individuals determine the strictness of EPL and the size of a redistributive UB system in two distinct political environments. Agents are heterogeneous along two dimensions: employment status -insiders and outsiders - and skills - low and high. Unlike previous work on EPL, we model employment protection as an institution redistributing also among insiders, notably in favour of the low-skill workers. A key implication of the model is that flexicurity configurations with low EPL and high UB should emerge in presence of dispersed wage structures and progressive UB systems. Micro data on wage dispersion display correlations consistent with our results. The analysis of the experience of EPL reformers yields results which are in line with the relation between EPL and progressiveness of the UB system implied by our model.

The impact of welfare and labour market institutions on informal recruitment in european youth labour markets

Abstract: Youth labour markets where informal recruitment practices predominate are likely to amplify existing inequalities among young job seekers. Whereas most literature on informal recruitment focuses on characteristics of individual job seekers and the nature of the jobs they obtain, this article suggests to relate this important issue to overarching dynamics of welfare and labour market institutions. Analyses of survey data among young people with a history of longer-term unemployment in eight European countries suggest that comprehensive welfare state arrangements may substitute for the importance of personal network resources in the job search process. Thus the welfare state may intervene by providing active measures to facilitate the job-matching process and by providing economic means to make young people less dependent on their social network. The level of youth unemployment also seems to be related to the extent of informal recruitment, which is found to be more widespread in the countries with...

Reforming Employment Protection Legislation in France

Abstract: Over the last 15 years, the reforms of employment protection legislation (EPL) in European countries have mainly eased hiring and firing restrictions for temporary employment while leaving the strict EPL provisions for regular or permanent contracts unchanged. Recent reforms in France follow this pattern. Using a search-matching model, we argue that this type of partial reform is inefficient: easing restrictions on temporary jobs fosters both job creation and job destruction, but strict EPL discourages both. The overall impact on equilibrium unemployment is thus ambiguous, depending on the characteristics of the specific labor market. Simulations of the model, calibrated for the French labor market, suggest that the job destruction effect is stronger, thus raising the unemployment rate.

Why are Nominal Wages Downwardly Rigid, but Less So in Japan?: An Explanation based on Behavioral Economics and Labor Market/Macroeconomic Differences

Abstract: In this paper, we survey the theoretical and empirical literature to investigate why nominal wages can be downwardly rigid. Looking back from the 19th century until recently, we first examine the existence and extent of downward nominal wage rigidity (DNWR) for several countries. We find that (1) nominal wages were flexible in the 19th century and first half of the 20th century, but (2) nominal wages were downwardly rigid in almost all industrialized countries in the second half of the 20th century, although (3) the extent of DNWR varied from country to country. Next, we use a behavioral economics framework to explain the reasons for DNWR. We also explain why the existence and extent of DNWR varied between time periods and/or from country to country, focusing on differences in the labor market characteristics (such as labor mobility and employment protection legislation) and in the macroeconomic environment (such as economic growth and inflation), which can alter employees’ and firms’ perceptions toward nominal wage cuts.

Нестандартная занятость и российский рынок труда

Abstract: The article focuses on diversification and destandartization of employment in the Russian economy. The authors discuss global and objective preconditions for this process but underline a few specific features of the Russian case. The latter are due to the market transition as well as to incomplete and selective enforcement of the excessively restrictive employment protection legislation. This explains high incidence of household-based subsistence farming, underemployment, time-related overemployment, informal employment against low level of formal contracts for fixed-term or part-time employment. Using representative data the authors illustrate all major forms of non-standard employment in Russia that have evolved since 1992.

Employment protection legislation; lessons from theoretical and empirical studies for the Dutch case

Abstract: Employment protection is a hotly debated topic. In this document we review the theoretical and empirical studies on the impact of employment protection. Subsequently, we confront the findings of these studies with the Dutch setup, and consider a number of reform options.

Reforming Employment Protection Legislation in France

Abstract: Over the last 15 years, the reforms of employment protection legislation (EPL) in European countries have mainly eased hiring and firing restrictions for temporary employment while leaving the strict EPL provisions for regular or permanent contracts unchanged. Recent reforms in France follow this pattern. Using a search-matching model, we argue that this type of partial reform is inefficient: easing restrictions on temporary jobs fosters both job creation and job destruction, but strict EPL discourages both. The overall impact on equilibrium unemployment is thus ambiguous, depending on the characteristics of the specific labor market. Simulations of the model, calibrated for the French labor market, suggest that the job destruction effect is stronger, thus raising the unemployment rate.

Pension Systems, Social Transfer Programmes and the Retirement Decision in OECD Countries

Abstract: The group of contributors in this book come from academia and international organizations in Europe and the USA. They focus on trade unions, which affect real-wage flexibility and the provision of training to workers. They also concentrate on employment protection legislation, which discourages firms from firing old workers and also from hiring new ones. The structure of housing market imperfections that can greatly affect regional mobility is also discussed.

Business environment and labor market outcomes in Europe and Central Asia countries

Abstract: New firm entry has been fundamental for job creation in the transition economies. Hence, the urge to reform the framework in which firms operate. This paper aims to improve our understanding of the business environment of the Europe and Central Asia (ECA) countries, as well as to assess which of the institutions that shape it are most important for labor market performance. To achieve that aim, the author groups the institutions into those affecting firm entry and those affecting business survival and growth, and proceeds to construct indicators to summarize them. Next, she analyzes the impact of the business environment institutions on the employment generated by the private sector of the countries, proxied by the service employment rate. The regression analysis uses an unbalanced panel of 28 ECA countries over 14 years-from 1988 to 2002. Recent literature on the labor market performance of the OECD countries argues that what matters for employment is the interaction between institutions and shocks. Accordingly, the explanatory variables used in the regression are the interactions between the transition shock suffered by the ECA countries and each of the business environment institutions previously defined. The author finds that access to finance is the most important institution across all ECA countries. The development of the financial sector can explain about 40 percent of private employment creation in the European transition economies according to the model. On the other hand, the poor access to finance in Bulgaria, Croatia, and above all, Romania, is the main factor behind their poor development of the private sector. Market regulation (credit and labor regulation), start-up costs, and the tax burden are all found to significantly affect employment as well.

EURO-PRODUCTIVITY AND EURO-JOBS SINCE THE 1960s: WHICH INSTITUTIONS REALLY MATTERED?

Abstract: How have labor market institutions and welfare-state transfers affected jobs and productivity in Western Europe, relative to industrialized Pacific Rim countries? Many studies have tackled this question, with mixed and often unclear results. This paper proposes an eclectic comparative economic history, giving a clearer answer to the issue than past studies have implied. Orthodox criticisms of European government institutions are right in some cases and wrong in others. Protectionist labor-market policies such as employee protection laws seem to have become more costly since about 1980, not through overall employment effects, but through the net human-capital cost of protecting senior male workers at the expense of women and youth. Product-market regulations in core sectors may also have reduced GDP, though here the evidence is less robust. By contrast, high general tax levels have shed the negative influence they might have had in the 1960s and 1970s. Similarly, other institutions closer to the core of the welfare state have caused no net harm to European jobs and growth. Coordinated collective wage bargaining has saved jobs throughout the postwar period, with no cost in terms of productivity. The welfare state?s tax-based social transfers have not harmed either employment or GDP. Even unemployment benefits do not have robustly negative effects.

Employment protection legislation and the growth of the service sector in the european union

Abstract: In modern developed economies it is the service sector that generates jobs. In Anglo-Saxon economies, where employment protection legislation is low and unions comparatively weak, services account for three-quarters of income and four-fifths of jobs. Yet in France, Germany and Italy, where the reverse is true, the service sector accounts for much less of the economy in terms of income and jobs. This article shows that employment protection legislation – defended by trade unions still dominating manufacturing in continental Europe – results in higher unemployment rates and also negatively affects the growth of services.

The Institutional Determinants of Early Retirement in Europe

Abstract: Low fertility rates combined with increases in early retirement pose a serious challenge to the sustainability of social security systems in most industrialized countries. Therefore, it is important for policy makers to understand the determinants of early retirement and especially the role that institutional factors play in the retirement decision. However, analyzing such factors ideally requires international microdata, which have in the past been largely unavailable. To fill this void, this paper investigates early retirement determinants across several European countries using the rich 2005 SHARE (Survey of Health, Aging and Retirement in Europe) microdataset, which produces more precise estimates of the effects of institutional and economic factors like pension systems, unemployment, and employment protection legislation. The analysis shows that pension systems offering generous early retirement options encourage early departure from the labor market. In addition, pension wealth accrual rate exerts a greater influence on early retirement decisions than does the average replacement rate, while stricter employment protection legislation has no significant impact.

Demand for Job Protection - Some Clues from Behavioural Economics

Abstract: The empirical evidence that unemployment is one of the most negative outcomes in life, carrying non-pecuniary psychic costs as well as pecuniary ones, is strong. Yet, standard explanations of the demand for social protection have neglected these costs and their impact on the way in which workers wish protection to be delivered. The paper exploits some clues from behavioural economics to factor these costs into the explanation of the demand for social protection in general and job protection in particular. Building on empirical evidence, we argue that loss aversion and hedonic adaptation may help explaining why workers, either employed or unemployed, ask for job protection and are willing to pay the cost of it. The main conclusion of our analysis is that, for poorly educated workers, job protection is more effective than public social expenditure. As a consequence, we argue that countries with a poorly educated workforce will be more prone to offer protection through job protection rather than public social expenditure, which is exactly what the empirical evidence shows. The paper concludes that flexibility is a behavioural attitude of individuals, which is primarily affected by education, rather than a normative characteristic of labour markets.