ABSTRACT This paper explores the quantitative role played by Employment Protection Legislation over employment and on‐the‐job training in the presence of dual labor markets across OECD economies. We extend the search and matching model by introducing formal education and investment decisions in training by firms, and a gap in firing costs between fixed‐term and unlimited contracts. The quantitative analysis shows that the model accounts well for cross‐country variation in employment and reasonably well for productivity, while it captures only a modest share of the dispersion in training and temporary employment. Decomposing the sources of heterogeneity, we find that differences in firing costs explain only 2%–20% of the observed cross‐country dispersion, whereas education accounts for most of the variation in employment and productivity, and also explains part of the cross‐country differences in training.

This paper examines how employment protection legislation and firing costs affect firm size growth and workforce composition in Italy (as a ratio of temporary to permanent employment), with a particular focus on recent labour market reforms. The analysis is based on administrative firm-level data from the Italian private sector, with a specific focus on firm outcomes above the 15-employee threshold, where stricter employment regulations apply. Using a linear probability model, we find that firms near this threshold are less likely to grow in terms of employee numbers. Furthermore, the discontinuity in employment protection influences the composition of the workforce, leading to a higher incidence of temporary contracts above the threshold. We apply a difference-in-discontinuities approach to examine the heterogeneity in the threshold effect during a period of labour market reforms. Our results suggest that recent reforms have had negligible effects on the discontinuity in firms’ employment growth. As for the use of flexible contracts, we observe a mitigation of the threshold effect after the regulatory changes. 

The effect of employment protection legislation on the internationalization of SMEs and their participation in global value chains

Employment Protection Legislation and Informality: Theory and Evidence from India

ABSTRACT We study the effect of automation technologies—industrial robots, software and databases—on the incidence of involuntary atypical employment in 13 EU countries between 2006 and 2018. Robots do not affect the total employment rate but significantly increase the involuntary atypical employment share, mainly through fixed‐term work. Software and databases increase total employment and are neutral for atypical employment. Higher trade union density mitigates the robots' impact on atypical employment, while employment protection legislation plays no role. Using historical decompositions, we attribute 1–2 percentage points of a 15% average atypical employment share in our sample to automation.

Abstract The article studies effects of social policies on in-work poverty risks, distinguishing between measures that either intervene in labour market processes—that is, pre-distribution policies—or redistribute towards those with low incomes. The analyses use data from EU-SILC and macro-level indicators from various sources to estimate general as well as household-type-specific effects using longitudinal methods. Results reveal important differences between specific policies: Increasing minimum wages contributes to reducing low-wage risks but has no significant effect on in-work poverty risks. In contrast, there is a negative effect of strict employment protection legislation across almost all household types on in-work poverty, which is consistent with the positive role this measure plays in supporting earnings that are sufficient to provide not only for one person but also for potential dependants in the household. With respect to redistribution policies, both unemployment benefits and benefits to low earners reduce poverty due to their contribution to public poverty reduction. However, whereas unemployment benefits reduce in-work poverty only among couple households, benefits to low earners mainly contribute to lower poverty risks among employed single parents. Overall, the results underscore that pre-distribution and redistribution as well as universal and targeted interventions cannot easily substitute for each other.

Abstract We develop an efficiency-wage model with firing costs, judicial delay, and judges’ pro-labor bias. When workers dismissed for personal reasons are not entitled to severance pay, a double moral hazard emerges: firms may disguise redundancies as disciplinary dismissals, and caught shirkers may litigate for wrongful termination. The impact of employment protection legislation—and its imperfect enforcement—on the efficiency wage depends on how the institutional environment shapes these strategic behaviors. In one of five possible settings, the efficiency wage decreases with pro-labor bias and increases with judicial delay. Using data on French labor courts and hourly wages, we find correlational evidence consistent with this prediction: wages correlate negatively with judicial delay and positively with pro-labor bias.

Poverty remains one of the pressing social problems of the modern world, and Russia is no exception. The most common cause of poverty is a shortage of income; however, employment and wages do not always guarantee that a family will escape poverty. The purpose of this paper is to systematize foreign and Russian scientific research devoted to the study of the causes and mechanisms of the emergence of the “working poor”. It presents a comprehensive view of poverty as a labor market problem, which is based on both the lack of jobs and their poor quality. Special attention is paid to the relationship between poverty and certain labor market institutions – employment protection legislation and minimum wages. In countries where the level of employment and involvement of households in employment is traditionally high (including Russia), the quality of employment and, above all, the reduction of low-paid employment becomes a fundamental issue of poverty reduction policy. However, in this case it should be taken into account that many low-paid employed people live in “non-poor” households. The opposite is also true: many poor households do not have low-paid workers, their poverty is due to other reasons not related to the labor market (first of all, the composition and size of the household). Therefore, as the experience of many countries shows, raising the minimum wage, as a rule, cannot be the only tool to reduce poverty.

ABSTRACTThis paper uses administrative tax data to examine the impact of strengthening employment protection legislation in the temporary employment services (TES) sector in South Africa. The study uses a regression discontinuity design to investigate whether the 2015 amendments to the LRA had a causal impact on the employment, wages and contract duration of workers employed in the sector. The findings suggest limited impacts in the short‐term. There were no significant effects on worker transitions, and improved working conditions only for the relatively small group that did move out of the TES sector into the non‐TES sector after the reform.

ABSTRACTThis study examines the impact of court‐enforced employment protection (EP) on total factor productivity (TFP) in India's formal manufacturing sector. Using high‐court judgments on labour disputes citing Chapters 5A and 5B of the Industrial Disputes Act, 1947, the study quantifies the extent of judicial enforcement of employment protection legislations (EPL) across states. Employing plant‐level unbalanced panel data (1999–2018) and addressing endogeneity through instrumental variable (IV) estimation using lawyer density, I find that EP negatively affects TFP, particularly in medium or large enterprises. However, my threshold regression analysis reveals that this negative effect emerges only when the de‐facto EP exceeds a certain level; below this threshold, it is positively correlated with TFP. These findings are further reinforced by the results of a quadratic regression model, which reveals an inverted U‐shaped relationship between EP and TFP. The results of the study remain robust across alternative model specifications and the inclusion of control variables, underscoring the need for a balanced approach to labour flexibility and job security.

ABSTRACT This article assesses potential differences in the implementation of employment protection for permanent and temporary contracts on upward and downward in-work earnings mobility between women and men aged 25–40 years in European countries for 2008–2014. Results reveal that, although employment protection is formulated based on a gender-neutral conception, the application of such measures might be associated differently with earnings mobility by gender. While higher levels of protection for regular contracts seem to be linked to lower earnings gains for women and men, more stringent employment regulations are related to losses for women. Likewise, stricter protection of temporary employment appears to favour greater gains for men, while it only prevents women from suffering more pronounced losses. In policy terms, intra-household and societal gender inequities, stand out as key factors driving the links between employment protection and earnings mobility.

Objective: This paper examines the relationship between labour market characteristics and innovations in the OECD countries. Specifically, this study adopts a quantitative approach, primarily focused on employing correlation analysis to explore the relationship between labour market institutions, labour market outcomes, and indicators measuring innovations in the OECD countries. Research Design & Methods: The study uses data from a diverse range of OECD countries to analyse the relationship between institutional frameworks, labour market outcomes and various dimensions of innovation. Through a correlation analysis of key indicators such as innovation and technological adoption rates, employment and participation patterns, and labour market institutions, the study highlights various ways in which labour markets respond to the demands of an increasingly digitised economy. Findings: The results indicate that investments in information and communication technology in the OECD countries are positively associated with public spending on labour market policies. Additionally, the empirical analysis indicates a positive relationship between people employed in high-skill occupations and indicators measuring innovation. In contrast, the relationship between people employed in low and medium-skill occupations and indicators measuring innovation was negative. Furthermore, stricter employment protection legislation is usually associated with lower values in indicators measuring innovation in the OECD countries. The results also indicate that the relationship between indicators measuring innovation and employment can vary across different sectors. Implications / Recommendations: The findings underline the critical importance of institutional dynamics in fostering digital progress and provide essential insights for researchers, policymakers, and others interested in the labour markets in the digital age. Contribution: The originality of the study lies in its extensive discussion of the impact of innovation and new technologies on labour markets in the digital economy, as well as its analysis of relationships between labour market outcomes, labour market institutions and indicators measuring innovation.

Abstract This article examines the role of unemployment benefits (UBs) and employment protection legislation (EPL) reforms in shaping the response of unemployment to output changes. Results—based on local projection estimates for an unbalanced sample of twenty-seven advanced economies during the period 1970–2019—suggest that reforms reducing the generosity of UB dampen the response of unemployment to output changes, while reforms reducing the stringency of EPL amplify it. Results are robust to a battery of robustness checks, including control for potential confounder effects and an instrumental variable approach to address endogeneity.

This study empirically investigates the moderating effects of institutions interacted with economic growth as determinants of cross-country income inequality. For a sample of 43 advanced and developing countries in the OECD and Varieties of Capitalism (VoC) literature over the period of 1995–2019, we test the hypothesis that the income inequality-increasing effects of GDP growth are reduced by robust institutions through interactive terms between economic growth and labour market institutions, gender-based institutions, and governance-based institutions. We use correlated random effects, feasible generalised least squares, and systems-generalised method of moments for panel data analysis using the Gini coefficient for post-tax and post-transfer household disposable income inequality as the dependent variable. Across all models, we find consistently significant statistical evidence for contingency effects between greater GDP growth rates and robust institutions. More specifically, the positive or inequality-increasing effects of greater GDP growth are shown to be reduced by stronger employment protection legislation and greater gender parity in education. Policy implications on inclusive growth thereby call for labour market reforms in terms of employment protection and improved access to education for women.

ABSTRACT This study analyzes how the social aspects of corporate social responsibility (CSR) influence firms' labor investment decisions. We provide new evidence using an international sample of 612 companies in 30 countries from 2012 to 2019; we use the generalized method of moments for our estimations. Our empirical analysis shows that increasing social CSR leads to labor overinvestment but reduces labor underinvestment. Our results also demonstrate that employment protection legislation limits the effects of social CSR on labor underinvestment. In conclusion, this study disentangles the relationship between social CSR and labor investment decisions. Finally, we discuss some relevant practical implications for managers and shareholders as we reveal the effect of social CSR on labor investment decisions and suggest a substitution effect between social CSR efforts and employment protection legislation.

The labor protection policies that policy makers implement to regulate the labor market are critical to labor productivity and unemployment rates. The theory generally holds that employment protect8on ra8ses the costs of layoffs for f8rms. Policy makers consider at the theory framework that it is possible to protect employment and reduce unemployment with Employment Protection Legislation (EPL). There 8s a large l8terature descr8b8ng the effects of str8ct EPL on employment and unemployment rates across countr8es. However, 8t 8s d8ff8cult to be prec8se about the est8mates of the effects of employment protect8on on youth unemployment and labour product8v8ty. The aim of this article is to investigate whether EPL is an important determinant of labor productivity and unemployment rates (unemployment and youth unemployment) in OECD countries during the period 2004-2019 using panel data analysis. The results show that EPL can reduce labor productivity by affecting employment decisions in the labor market.

Motivation: Despite a wealth of research the role of labour market institutions (LMIs) remains controversial. The problem is on the increase lately because of socio-economic transformation affecting the functioning of labour markets. One of the explanations of the problem might be the lack of precise definitions and proper measures of LMIs, especially informal ones, that could be used in econometric research. Aim: The aim of the paper is twofold. First, to follow the evolution of the concept of LMI measures in economic literature, both in the theoretical context and in empirical application. Second, to compare different measures of employment protection legislation (EPL) and assess their effectiveness in capturing the quality of workers’ protection. The analysis takes an institutional perspective which assumes that LMIs are a means to solve the problem of market inefficiencies rather than a source thereof. Results: The paper identifies inadequacies in the way LMIs are measured and used in empirical research. Keywords: labour market policies, employment protection, institutional economics JEL: J08; J83; E02

We examine the relationship between labour market flexibility, as measured by employment protection legislation (EPL), and long-term economic growth in developed economies from 1995 to 2022. We consider conflicting viewpoints on whether rigid labour market regulations hinder or promote economic growth. Employing a cross-country regression model, controlling for factors including initial GDP per capita, capital formation, human capital, research and development, and indicators of macroeconomic performance, we find that only initial income level and capital formation significantly influence long-run growth in real per capita GDP. EPL has no significant impact in the long run, challenging the pre-2000 advocacy of labour market deregulation by major international organisations. We conclude that policy should focus on supporting the investment decisions of the private sector without distorting market mechanisms.

PurposeThis study aims to revisit the relationship between the stringency of employment protection legislation and entrepreneurship at the macro-level using time series data from 28 OECD countries.Design/methodology/approachTo address model uncertainty, a Bayesian model averaging methodology is employed, overcoming issues related to predictor selection. Additionally, the study delves into the interaction between employment protection legislation and the rule of law, considering potential unintended consequences and overlapping effects. Heterogeneity within self-employment is explored, making a distinction between solo self-employment and employer entrepreneurship.FindingsThe findings reveal that the impact of employment protection legislation, both for regular and temporary employment, on aggregate solo self-employment rates is contingent upon the level of practical regulatory compliance. The legislation can either stimulate or hinder entrepreneurship, highlighting the nuanced nature of its influence on macro-level entrepreneurial activities.Practical implicationsThe results of this study provide valuable insights for policymakers and regulators by emphasizing the complexity of the relationships under consideration. Understanding the potential interactions between employment protection legislation, rule of law and practical regulatory compliance is crucial for designing an effective and conducive regulatory environment for entrepreneurship.Originality/valueThis research offers a unique contribution to the literature in three distinct ways: by addressing model uncertainty through Bayesian model averaging, examining the interaction between employment protection legislation and the rule of law and differentiating between solo self-employment and employer entrepreneurship. These distinctive elements enhance the originality and value of the study, providing a more nuanced understanding of the intricate relationship between legal frameworks and macro-level entrepreneurship.

Evaluation of the impact of Korea’s employment protection legislation on vocational training discrimination against non-regular workers