Employment Protection Reforms Research Articles

The Effects of Partial Employment Protection Reforms: Evidence from Italy

Abstract We combine matched employer–employee data with firms’ financial records to study a 2001 Italian reform that lifted constraints on the employment of temporary contract workers while maintaining rigid employment protection regulations for employees hired under permanent contracts. Exploiting the staggered implementation of the reform across different collective bargaining agreements, we find that this policy change led to an increase in the share of temporary contracts but failed to raise employment. The reform had both winners and losers. Firms are the main winners as the reform was successful in decreasing labor costs, leading to higher profits. By contrast, young workers are the main losers since their earnings were substantially depressed following the policy change. Rent-sharing estimates show that temporary workers receive only two-thirds of the rents shared by firms with permanent workers, helping explain most of the labor costs and earnings reductions caused by the reform.

The Causes of Duality in the Labor Market: Evidence from Spain's Payroll Tax and Employment Protection Reforms

The Causes of Duality in the Labor Market: Evidence from Spain's Payroll Tax and Employment Protection Reforms

The Effects of Partial Employment Protection Reforms: Evidence from Italy

The Effects of Partial Employment Protection Reforms: Evidence from Italy

Employment Protection Reform in European Labor Markets: The Collective Bargaining Regime Matters

Policy advisers repeatedly call on Western European countries to reform their employment protection legislation (EPL) by switching to a layoff tax model of unemployment insurance (UI) funding. This new design, partly based on the existing “experience-rating” (ER) system in the U.S., should induce firms to internalize layoff fiscal costs and hence reduce unemployment. However, its success remains uncertain in economies with a collective wage-setting system, as do those of many Western European countries. Using a matching model with endogenous job destruction, we provide an ex-ante evaluation of this policy reform’s effects on labor market outcomes and aggregate welfare in firm-level and sector-level bargaining economies. Our numerical analyses yield two main results. First, compared to simply increasing firing/dismissal costs, implementing an ER system improves labor market outcomes in both types of economies. Second, the design of the reform has to be adapted to the level of wage bargaining in the economy. Because firms can adjust most of the terms and conditions of employment (including wages) in decentralized negotiations, adding ER to existing EPL yields the largest reduction in unemployment under firm-level bargaining, while with sector-level bargaining, ER is better implemented with a relaxation of existing EPL. However, if the aim is to increase aggregate welfare, it is better under both bargaining regimes to relax existing EPL when implementing ER.

Employment protection reforms and labour market outcomes in the aftermath of the recession: Evidence from Croatia

This paper examines the effects of employment protection legislation (EPL) reforms on employment outcomes in Croatia, testing the available theoretical predictions of partial labour market reforms from the literature. Using Labour Force Survey (LFS) data in the period 2007-2017 and applying the event study method in combination with probit regressions, the main results suggest that EPL reforms from 2013 and 2014 induced a rise in temporary employment, while the effects on overall employment are clearly visible only in the case of the second reform. Moreover, probit regression estimations show that specific groups of the population – females, youths, foreigners, the low-skilled and singles from rural areas – have a higher probability of ending up with temporary contracts, suggesting there is a segmentation on the Croatian labour market.

Intergenerational effects of employment protection reforms

Job insecurity has worsened in most OECD countries in the aftermath of the Great Recession. Using Labour Force Survey data, I estimate the link between parental job insecurity (as measured by the contract type held by parents) and children’s school related outcomes. Endogeneity issues affecting the type of contract held by parents are dealt with by constructing an instrument based on regional, time and demographic variation in the amount of wage subsidies available to firms to convert fixed-term contracts into permanent ones in Spain. The findings suggest that children whose fathers are less job insecure are considerably more likely to graduate from compulsory education on time. They are also less likely to drop out of the education system and be classified as Not in Education, Employment or Training at age sixteen. Employment protection reforms that liberalise the use of fixed-term contracts and do not take into account these negative externalities on other members of the household are therefore understating their overall cost.

Flexicurity between Europeanization and Varieties of Capitalism? A Comparative Analysis of Employment Protection Reforms in Portugal and Greece

AbstractThe article examines the adoption of Flexicurity principles in Portugal and Greece during 2006–2009. Despite the similar conditions between the two cases and common EU stimulus, the process and final outcomes in the reform of their employment protection systems differed. In Portugal, the government persevered and implemented a reform in line with Flexicurity principles. By contrast, the Greek government initially favoured Flexicurity and initiated a reform process of the legal framework; however the reform was halted. The article explains this divergence by combining the insights of Europeanization and Varieties of Capitalism literatures. It is argued that in cases of Mixed Market Economies, ‘misfit’ with EU stimuli is a necessary, but not sufficient condition for institutional change. Instead, reforms depend on union structure and the existence of policy entrepreneurs favouring reform, which explains the divergent reform paths.

Employment Protection Reform, Enforcement in Collective Agreements and Worker Flows

We analyze a reform of notice periods for employer‐initiated separations in Sweden, which reduced the notice periods for newly hired older workers substantially but implied minor or no changes in the advance notices for younger workers. The reform was initiated at different times depending on collective agreement. These circumstances provide ample opportunity for the identification of its effects. Our findings indicate heterogeneous effects on hirings and separations across collective agreements.

Does Deregulation Help? The Impact of Employment Protection Reforms on Youths’ Unemployment and Temporary Employment Risks in Europe

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.

Do Employment Protection Reforms Affect Well-Being?

Do Employment Protection Reforms Affect Well-Being?

Do labor market institutions matter for business cycles?

Using panel data of 19 OECD countries observed over 40 years and data on specific labor market reform episodes we conclude that labor market institutions matter for business cycle fluctuations. Spearman partial rank correlations reveal that more flexible institutions are associated with lower business cycle volatility. Turning to the analysis of reform episodes, wage bargaining reforms increase the correlation of the real wage with labor productivity and the volatility of unemployment. Employment protection reforms increase the volatility of employment and decrease the correlation of the real wage with labor productivity. Reforms reducing replacement rates make labor productivity more procyclical.

Partisanship, political constraints, and employment protection reforms in an era of austerity

Why do some governments adopt unpopular reforms entailing far-reaching liberalization of the labor market, while others opt only for marginal adjustments or even regulatory reforms? This paper explains the likelihood of different types of reforms as an effect of different constellations of government partisanship and veto players. Combining the ‘blame avoidance’ and ‘veto players’ logics of politics, I argue that veto players have either a constraining or enabling effect depending on the partisan orientation of government. Liberalization is most likely to be adopted either by right parties facing few veto players, or by left parties in contexts with a high degree of power sharing. Regulatory reforms are most likely when left governments enjoy strong power concentration, but marginal regulation may also be adopted under external pressure by right governments facing many veto players. An analysis of employment protection reforms in 24 European Union countries during 1990–2007 supports the argument that the effect of political constraints and opportunities on the choice of reforms is shaped by partisan differences.

Employment Protection Reform, Enforcement in Collective Agreements and Worker Flows

Differential enforcement of employment protection by explicit design of the legislation, for example, through exemptions for small firms, has been exploited in a growing body of research. However, little is known about the effects of differential enforcement that is not defined by the letter of the law, presumably due to the lack of data. Our study incorporates aspects of both types of differential enforcement as we combine the evaluation of a partial reform with information on the more difficult-to-observe enforcement of the same reform in collective agreements. We analyse a reform of notice periods for employer-initiated separations in Sweden, which reduced the notice periods for newly hired older workers substantially but implied minor or no changes in the notices for younger workers. The reform was initiated at different times depending on collective agreement. These circumstances provide ample opportunity for the identification of its effects. Our findings indicate heterogeneous effects across collective agreements. Despite differences in terms of dynamics and size, a positive effect on hiring is found for all agreements. In most cases, our results also show an increase in separations, indicating an increase in employment turnover. A salient feature of the results is that the estimated effects increase with the treatment dose, i.e., the size of the reduction in notice periods across different age groups.

Réforme de la protection de l'emploi et performance du marché du travail dans un modèle d'appariement

In this article, we evaluate the virtues of an employment protection reform which is based on a simplification of the red tape and legal costs associated with layoffs and on the introduction of a U.S.-style experience-rating system. To this end, we use a search and matching model a la Mortensen and Pissarides to show that such a reform improves both the design of employment protection and the performance of the labor market.

The Political Economy of Two-tier Reforms of Employment Protection in Europe

Reforms of employment protection in Europe have eased the recourse to temporary forms of employment while not reducing the strictness of employment protection of permanent jobs (with the exception of Spain). Since 1990, such two-tier reforms have been implemented in Belgium, Denmark, Germany, Greece, Italy, the Netherlands and Sweden. The paper seeks to show why two-tier reforms of employment protection have taken place in some countries and have failed in other cases. This is done by taking a closer look at the history of national reform processes. In addition the paper seeks to determine whether two-tier reforms have subsequently led to employment protection reforms for permanent jobs.

Employment protection reforms, employment and the incidence of temporary jobs in Europe: 1996–2001

This paper uses longitudinal data on individuals from the European Community Household Panel over the 1996–2001 period to investigate the impact of reforms of employment protection systems in nine countries on the incidence of employment and of temporary jobs for wage and salary workers. Important features of the research design include the use of individual fixed effects models as well as the inclusion of country-specific trends in the dependent variable. A robust finding is that policies making it easier to create temporary jobs on average raise the likelihood that wage and salary workers will be in temporary jobs. This effect is felt primarily when the regional unemployment rate is relatively high. However, there is no evidence that such reforms raise employment. Thus, these reforms, while touted as a way of jump-starting individuals' careers in the job market, appear rather to encourage a substitution of temporary for permanent work.

Labour Protection and Productivity in the European Economies: 1995-2005

Research QuestionThe present study examines cross-national and sectoral differences in multifactor productivity growth in sixteen European countries from 1995 to 2005. The main aim is to ascertain the role of flexible employment contracts and collective labour relationships in explaining the ample differentials recorded in the European economy.Research Findings We use the EU KLEMS database for growth accounting and a broad set of indicators of labour regulations, covering two distinct 'areas' of labour regulation: employment laws and collective relations laws. This comprehensive approach allow us to consider arrangements that regulate allocation of labour inputs (fixed-term, part-time contracts, hours worked) and of payoff and decision rights of employees. We find that, since 1995, European countries have not followed similar patterns of growth. A large number of variations between European economies are caused by deep differentials in multifactor productivity and part of this heterogeneity is caused by sectoral diversities. We show that, in labour-intensive sectors such as services, fixed-term contracts, which imply shorter-term jobs and lower employment tenures, may discourage investment in skills and have detrimental effects on multifactor productivity increases. We also find that some forms of labour regulation and arrangements that give a 'voice' to employees mitigate these perverse effects on efficiency patterns. Policy Implications Employment protection reforms which slacken the rules of fixed-term contracts cause potential drawbacks in terms of low productivity gains. More stringent regulation of these practices, as well as a climate of collective relations, sustain long-term relationships and mitigate these negative effects.

Employment protection reform in search economies

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor-market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layoffs and introduces a U.S.-style experience-rating system, which we model as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve the efficiency of employment protection policies without affecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation finance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.

Employment Protection Reforms, Employment and the Incidence of Temporary Jobs in Europe: 1995-2001

Using European Community Household Panel data for nine countries for 1996-2001, I investigate the impact of reforms of employment protection systems on employment and on temporary jobs for wage and salary workers. Individual fixed effects models are estimated, with the inclusion of country-specific trends in the dependent variable, addressing the possibly changing labor force composition and the possible endogeneity of the reforms. A basic finding that is robust to all specifications and to the disaggregation of the sample by country is that policies making it easier to create temporary jobs raise the likelihood that wage and salary workers will be in temporary jobs. However, there is no evidence that such reforms raise employment, and in some countries, they appear to lower employment. Thus, these reforms appear rather to encourage a substitution of temporary for permanent work. Reforms of permanent employment protection mandates have small and insignificant effects on employment and temporary jobs on average. Moreover, when I disaggregate by country, such reforms appear more often to lower overall employment and to lower the share of employment in permanent jobs. These are likely to reflect short run impacts of such reforms, which make it easier for firms to discharge substandard workers.

The perverse effects of partial employment protection reform: The case of French older workers

French firms laying off workers aged 50 and above have to pay a tax to the unemployment insurance system, known as the Delalande tax. We evaluate the impact of this tax on layoffs as well as on hiring, taking advantage of several changes in the measure since its introduction in 1987. A legislative change in 1992 exempted firms from the tax for workers who were hired after age 50. Following this change, the transition rate from unemployment to employment increased significantly for workers over 50 compared to workers under 50. The difference is sizeable: between one third and one half of the initial transition rate. Evidence on the effect on layoffs is less clear cut. The impact is sizeable only for the most stringent tax schedule, after 1998.