Different Paths Towards Flexibility: Deregulated Employment Protection or Temporary Employment - A Study of Cross-National Variance on Employment Protection Legislation and Temporary Employment in 19 OECD Countries

During the last two decades many EU countries have reformed the set of legal rules that regulate dismissals. And, in contrast with other institutional reforms of the labour market, there seems to be a common strategy of maintaining strict employment protection legislation for workers under the typical "full time"/permanent employment contract, but liberalising "atypical"/temporary/part-time employment contracts for new entrants in the labour market. As a result, the incidence of temporary employment has noticeably increased across the EU, being Spain the paramount case in this regard. In this paper we aim at two goals. First, we take stock of the available Spanish evidence regarding the consequences of a dual labour market-in which one-third of employees are under very flexible employment contracts with low severance payments and two-thirds are under permanent employment contracts with very high employment protection- and the lessons which can be drawn for other countries. Secondly, we address the puzzle of why temporary employment in Spain, despite of recent labour market reforms which have reduced firing costs under the permanent contract and restricted the use of temporary contracts, remains so high. Keywords: Temporary employment, employment protection legislation. JEL Codes: J65, J68. FEDEA -- D. T. 2001-11 by Juan J. Dolado, Carlos Garca-Serrano y Juan F. Jimeno 2 1.

Do flexibility-enhancing reforms imply more employment instability? Using individual-level data from harmonised household surveys for 26 advanced countries, this paper analyses the effects of product and labour market reforms on transitions in and out of employment. Results indicate that reforms making product markets more competitive increase transitions out of employment for less qualified and low-income workers. Less qualified and low-income workers have very high job exit rates to start with, and reforms raise these rates further. On the other hand, more pro-competitive product market regulation generally increases entry rates into employment. The concentration on less qualified and low-income workers of the increase in labour market turnover associated with product market reforms suggests a case for accompanying such reforms with labour market programmes that help the most vulnerable workers transition to new jobs. Easing employment protection for regular or temporary workers has no systematic long-term effect on workers’ probabilities to move in or out of employment. Such reforms can, however, affect employment transitions through their interaction with other policies and institutions. For example, easing employment protection for workers with regular contracts raises the job-finding chances of people out of work in countries that invest a lot in active labour market programmes. Furthermore, employment protection legislation and product market regulation are complementary in that, when either employment protection or product markets are lightly regulated, reforming the other is associated with fewer job exits.

Drawing Lessons From The Boom Of Temporary Jobs In Spain

How does employment protection legislation affect labor investment inefficiencies?

This article deals with the relation between labour market regulation and the dynamics of overall employment and unemployment in continental Europe. We investigate the impact of the reforms of employment protection systems and activating welfare policies and test the integrative power of marginal labour market deregulation, assessing occupational outcomes of changing workforce exposure to unemployment and fixed-term contracts. Thus, particular attention is paid to the possible effect of ‘institutionally driven’ labour market segmentation, mirrored by the national discrepancy in employment protections of workers with distinct contractual arrangements and by the ratio of expenses on GDP in active versus passive labour market policies. We use pseudo-panel data based on European Labour Force Survey (EU-LFS) (1992–2008) and apply linear fixed effect (FE) models with lagged independent variables. The deregulation measure—the insider–outsider differentials—is based on the OECD employment protection legislation index (EPL 2013). The overall findings indicate a detrimental effect of unbalanced passive and active labour market policies, a negative trend of permanent employment, and a ‘honeymoon effect’ of partial and targeted deregulation measures whose effectiveness on overall employment, if any, appears to be progressively weakened over time. The responsiveness of employment conditions to marginal EPL variations as well as to previous ‘unstable employment situations’ is significantly higher in Southern Europe. Temporary employment, if compared with unemployment, may still play a role in reducing individual subsequent unemployment risks, but its ‘integrative effect’ is hardly confirmed if we view fixed-term contracts as a stepping stone towards stable insertion into the primary labour market.

The vulnerable situation of temporary agency workers is manifested in previous research that evidences the job insecurity of this group. However, research shows that this insecurity is due to the temporary nature of employment contracts for this group of workers. In Sweden, where temporary agency workers have the same type of employment contracts (i.e., temporary or permanent contracts) and are entitled to the same employment protection as other groups of employees, one might expect a different picture. This article examines the situation of temporary agency workers who have the same working conditions as client organization employees. These workers have permanent contracts and are treated like client organization employees. We have chosen to examine this case because we anticipate it to be very likely to contradict statements regarding temporary agency workers’ affiliation with the precariat. This article aims to empirically elucidate the precariousness of temporary agency workers who are highly integrated with client organization employees and who share the same work tasks. Our analysis shows that competence development is crucial to perceptions of job security. However, temporary agency workers lack competence development, both on the part of the employer (the temporary work agency) and on the part of the client organization. The client organization has no incentive to invest more than the required competencies, since temporary agency workers only constitute a buffer in case of a downturn. We argue that it is the agency workers’ connection with a buffer that results in a lack of job security. Our results also show that temporary agency workers’ job security could be increased if temporary agencies were to invest in competence development for the agency workers, thus overcoming these workers’ vulnerability in constituting a buffer.

Political parties are likely to hold differing views about employment protection legislation (EPL). While pro-welfare parties could support EPL, pro-market parties might focus on labour market deregulation. In this paper, we investigate empirically whether partisan politics, especially the government participation of Social democrats and Christian democrats, matter for EPL in 21 established OECD countries from 1985 to 2019. We show that during the golden age of the welfare state, the level of EPL was much higher where Social and Christian democrats dominated the government than elsewhere. After the golden age and under conditions of high unemployment, these unconditional effects mostly disappeared. Instead, the level of unemployment conditions partisan differences. Christian democrats liberalize EPL for regular employment significantly less than other parties under high levels of unemployment. In contrast, Social democrats defend high levels of EPL for regular and temporary employment when unemployment is low. Against expectations, they even liberalize employment protection for labour market insiders more than other parties at very high levels of unemployment.

Total birth rates have fallen dramatically in many European countries during the last 40 years. Job and income instability caused by labor market polarization are significant drivers of declining birth rates because employment certainty and stability are crucial to childbirth planning among young adults. This article investigates the impact of job instability on the fertility intentions of young adults in Europe, focusing on employment protection legislation (EPL) in European countries. I use data from twenty-seven countries that participated in the European Social Survey in 2004 and 2010 to show that job instability measured as temporary employment, informal work, and unemployment decreases fertility intentions among European youth regardless of the EPL in the country. Unemployed young adults tend to plan less for having their first child in the countries with high EPL. Contrary to the hypotheses, multilevel modeling showed that young people in temporary or informal employment in countries with low EPL show decreases in their fertility intentions.

In recent years the availability of new industry-level data allowed to evaluate the impact of labour market policies more consistently than previous standard cross-country studies. In this paper an industry-level panel is exploited to evaluate the impact of Employment Protection Legislation (EPL) for temporary employment (TE), along with permanent employment (PE), in EU countries. Indeed, the advantage of using industry-level data is manifold. The method exploits both cross-country variation in EPL for PE and TE and variation in the relevance of EPL in different industries deriving from a particular diff-in-diff assumption. Differently from the previous literature we apply this idea of the different binding of EPL only for PE, whereas we implement a different strategy for TE which should imply a more accurate identification of the effect of the use of TE on labour productivity. The theoretical literature has not established a clear prediction on the sign of the effects, existing different convincing reasons for both directions. Thus, the results of the analysis have potentially important policy implications. Our main finding is that the use of temporary contracts has a negative, even if small in magnitude, effect on labour productivity. Furthermore, the analysis confirms that EPL for regular contracts reduce labour productivity growth more in those industries requiring a greater employment reallocation.

Labour contract regulations and workers' wellbeing: International longitudinal evidence

Labour Contract Regulations and Workers' Wellbeing: International Longitudinal Evidence

Rigid employment protection legislation (EPL) has been blamed as the root of youths’ labour market integration problems in Europe. Many European countries have reacted by deregulating employment protection laws, often targeting youths as a group. However, doubts about the effectiveness of EPL reforms have arisen. Against this background, this article investigates whether EPL reforms succeeded in integrating youths into labour markets or whether they were ineffective and just promoted temporary employment as a crucial new social inequality in Europe. Based on two-step, three-level analyses using micro-data from the European Labour Force Survey for 19 European countries for the period from 1992 to 2012, our results show that deregulating the use of temporary contracts increased temporary employment risks of youths but did not reduce (for low-educated young men, even increased) unemployment risks. In contrast, we find some evidence that decreasing the protection of permanent jobs was successful in decreasing risks of inequality/insecurity (in terms of temporary jobs) without affecting the risks of labour market exclusion.

In Search of a Balance: Flexibility and Security Strategies in Employment Protection Legislation, Temporary Work and Part-Time Work

The poor employment performance of European countries compared with that of the U.S. is often attributed to the strictness of employment protection in Europe. Many believe that differences in labour market regulations play an important role in explaining international differences in labour market outcomes. This argument clearly has strong implications for policy design. If tight rules governing employment protection are to be blamed for poor labour market performance, then conservative governments may reduce restraints on the ability of firms to hire and fire (by weakening trade unions and labour market regulations for example). This controversial proposition has generated a considerable literature and much debate. Theoretical models show that employment protection does tend to have a constraining effect on both layoffs and hirings, job creation and destruction, unemployment inflows and outflows, with the extent to which one effect dominates the other depending on the values of the parameters. It follows that the role played by employment protection in determining aggregate labour market outcomes is mainly an empirical question. However, the available empirical evidence on the relationship between employment protection and labour market performance is based on highly imperfect measures of the strictness of employment protection legislation (EPL).1 While considerable work – both theoretical and empirical – has been done on the subject, few studies have focused on how employment protection is measured. Previous research has circumvented measurement difficulties by using qualitative rankings of EPL stringency. But recent developments – notably ongoing reforms of employment protection in most countries and the expansion of non-standard forms of employment – have not only rendered existing information obsolete, they have also called into question the methodological basis of that empirical research.

Over the past decade, Korean businesses have experienced significant growth in the proportion of temporary employment. In response, the Korean government has enacted the “Temporary Employment Protection Act” to curb the use of temporary employment. With these legislative changes, Korean employers confront choices about whether to encourage transitions from temporary to permanent employment or to utilise outsourcing/contracting services. The purpose of this study is to explore internal labour markets (ILMs) and investigate why companies are willing to transform temporary employment into permanent employment. Furthermore, in the face of market volatility, we consider how companies are willing to increase the number of temporary workers in order to more easily adjust the numbers and types of human resources, rather than constructing and establishing ILMs within a firm. By investigating the interrelated relationships between ILMs, environmental dynamism, and transitions from temporary to permanent employment status, this study elaborates the features of ILMs in making employment decisions. The statistical results of this study show that structural elements of ILMs facilitate transitions from temporary to permanent employment. Among ILMs, only seniority-based pay plans reduce the number of permanent employees transferred from temporary status when companies experience dynamic changes in their environments. Furthermore, ILMs exerted greater influences over employers’ decisions about transitions from temporary to permanent employment a few years after the enactment of changes in temporary labour laws and regulations. This study shows that the features of an employment system determine companies’ decisions about temporary versus permanent employment. ILMs shape and establish organisational norms and cultural traditions that determine employment structures. Furthermore, institutionalised environments also determine whether employers decide to make transitions from temporary to permanent employment. Future studies should pay attention to the features of employment systems as determinants regarding firms’ human capital.