Firing Costs Research Articles

The Italian Labor Market Reform: An Evaluation of the Jobs Act Using the Prometeia DSGE Model

We evaluate the impact of Italian labor market reform included in the so-called Jobs Act using the Prometeia Dynamic Stochastic General Equilibrium (DSGE) model for the Italian economy. Following Krause and Lubik (J Monet Econ 54(3):706–727, 2007) and AlShehabi (J Macroecon 43:285–299, 2015), we introduce into the search and matching framework endogenous productivity-dependent firing costs which allow us to account for the innovations provided for by the reform. We simulate the introduction of the new contract with increasing protection, and analyze the role of different compensation schemes in dismissal. Moreover, we evaluate the effects of an increase in the functional flexibility, and strengthening the social security system. In general, we find a positive impact on GDP and aggregate demand. However, this positive effect comes at the expense of reductions in the labor income share and average wage, with a slight temporary decline in the unemployment rate that remains permanently higher in the long run.

Dual labor markets and labor protection in an estimated search and matching model

This paper estimates a search and matching model with labor protection and dual labor markets in which the relative availability of temporary versus permanent contracts in the market is endogenous. Chilean data is used to evaluate the role of labor protection legislation and the use of temporary contracts in unemployment, welfare, and inequality. Results show that the share of temporary contracts in the labor market becomes more important as firing costs increase. Simultaneously, temporary contracts negatively affect the frequency with which regular jobs arrive and offset any positive effect of firing costs on unemployment. Finally, temporary contracts increase flexibility and generate increasing welfare gains as labor protection becomes more stringent.

Home Fire Safety Checks in New South Wales: an economic evaluation of the pilot program

Traumatic events such as fire can result in fatality, injury, and loss of property; even a minor fire can interrupt the normal flow of people’s lives. During the years 2009–2013, urban and regional New South Wales (NSW) experienced an annual average of 4329 residential structural fires with 593 injuries and 22 fatalities at an annual cost of $656 million dollars. In 2014, Fire and Rescue NSW piloted a program called Home Fire Safety Checks (HFSC), aimed at high-risk households. In total, 228 homes in 8 suburbs received safety checks, including having smoke alarms installed, having batteries changed in smoke alarms, and being provided with fire blankets and fire safety information. The pilot study design enabled detailed economic evaluation of the program, including both development costs and ongoing costs for a full roll-out. Analysis of the cost of fire within NSW, combined with measurements of the success of similar programs internationally, demonstrates the program’s cost effectiveness. Savings per dollar spent exceed $12 if the program includes 1% of high-risk homes and obtains a 0.75% reduction in number of fires. These results demonstrate that a full roll-out of the HFSC program warrants ongoing funding. External factors affecting program delivery include community acceptance and willingness to participate in the program, particularly very high-risk individuals, and ongoing behavioral change. In addition, HFSC faces the same ongoing funding challenges other preventative community programs face in a period of tightening state budgets.

Institutions’ and Firms’ Adjustments: Measuring the Impact of Courts’ Delays on Job Flows and Productivity

AbstractNot only is labor-market rigidity the result of legislative provisions, but it is determined by the institutional framework at large. We argue that courts’ delays in settling labor disputes affect the strictness of employment-protection legislation by increasing the expected firing costs. We exploit the variation in the length of labor trials across Italian judicial districts and the fact that the Italian legislation regarding firing prescribes different firing regimes for firms above the 15-employee threshold and provide evidence on the impact of courts’ delays on job reallocation and firms’ productivity. We show that in judicial districts with longer trials, the rate of job turnover is significantly lower. This occurs through lower rates of job destruction and, to a lesser extent, job creation. We also find a detrimental impact of courts’ delays on the labor productivity of firms above the 15-employee threshold. The effect is stronger in sectors with higher flexibility requirements.

The Cost of the Dismissal, and the Predictability of Firing Costs: an Employment Solution to the Financial Crisis?

AbstractThis paper seeks to contrast the prevailing economic justifications in favour of the ongoing deregulatory reforms (based on the need for greater certainty in terms of firing costs for businesses) with an alternative “liability based” economic approach. Eventually the scope is to ascertain whether, from a purely juridical viewpoint (and also from a Law and Economics perspective), the current legislative trend in labour law is consistent with the initially declared purposes or not. More specifically, the comparison between two very different employment protection systems (i. e., the Italian and the British ones) can show how the current legislative trend based on the predictability of firing costs is only partially consistent with the declared objectives, whereas it could play a much larger role as a hermeneutical tool used in a more business-oriented interpretation of traditional legal notions (among Italian scholars, so-called “categorie”), such as the one of dismissal on “subjective” grounds.

Temporary Employment Boom in Poland: A Job Quality vs. Quantity Trade-Off?

Between 2002 and 2015, temporary employment in Poland more than doubled. Poland became the country with the highest share of temporary jobs in the EU. In this paper we study this process from the job quality vs. job quantity perspective. We analyse gaps between temporary and permanent workers in six dimensions of jobs quality, adopting measures proposed by the OECD and Eurofound. The gaps in earnings quality, job security and work scheduling quality were the most pronounced. Job quality has improved for both groups of workers but the gaps have not closed completely. Firms in Poland prefer temporary contracts because of lower firing cost, tax wedge and wages. We use a stylised labour demand model to quantify the upper bound of a potential job creation effect due to lower labour costs incurred by temporary contracts. We find that this effect doesn’t exceed 4% of dependent employment in 2015. We cannot rule out that the net employment effect was 0. Our findings show that even if cheaper, temporary contracts might have induced some job creation, workers suffered from lower job quality in several dimensions.

Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms

This paper analyzes the effect of having a large gap in firing costs between permanent and temporary workers in a dual labour market on TFP development at the firm level. We propose a simple model showing that, under plausible conditions, both temporary workers' effort and firms' temp-toperm conversion rates decrease when that gap increases. We test this implication by means of a panel of Spanish manufacturing firms from 1991 to 2005, using as natural experiments some labour market reforms entailing substantial changes in this gap. Our main empirical finding is that reforms leading to a lower gap enhanced conversion rates, which in turn increased firms' TFP, and conversely for reforms that increased the gap.

Employment protection legislation and SME performance

This article examines the effect of employment protection legislation (EPL) on small and medium-sized enterprise (SME) performance. Rather than relying on country-specific proxies for EPL, as is common in the literature, we compute firm-specific measures of a firm’s exposure to EPL by using a panel dataset of 13,112 Belgian SMEs for the period between 2000 and 2009. The empirical results show that firms perform better when faced with lower hiring and firing costs through the use of more blue-collar labour contracts. The evidence showing improved performance by firms that attempt to achieve greater flexibility by hiring more temporary workers is limited.

Unemployment hysteresis and structural change in Europe

We examine the unemployment hysteresis hypothesis for 31 European countries, the USA and Japan, using alternative linear and nonlinear unit root tests, taking into account possible structural breaks. Two types of smooth transition models—Exponential Smooth Transition Autoregressive and Asymmetric Exponential Smooth Transition Autoregressive—are employed to account for the nonlinear mean-reverting behaviour in unemployment due to heterogeneity in hiring and firing costs across firms. Four main results emerge: first, the hysteresis hypothesis is rejected for 60 % of the countries in our sample. Second, nonlinear models capture the asymmetries in unemployment dynamics over the business cycle for some countries. Third, many of the series display multiple structural breaks which might point out shifts in mean level of unemployment. Fourth, forecasting powers of our nonlinear models display poor performance against the linear AR specification. The results have policy implications for the debate on the benefits of demand or supply-side policies for tackling the current unemployment problem in Europe.

Firing Costs and Capital Structure Decisions

ABSTRACTI exploit the adoption of state‐level labor protection laws as an exogenous increase in employee firing costs to examine how the costs associated with discharging workers affect capital structure decisions. I find that firms reduce debt ratios following the adoption of these laws, with this result stronger for firms that experience larger increases in firing costs. I also document that, following the adoption of these laws, a firm's degree of operating leverage rises, earnings variability increases, and employment becomes more rigid. Overall, these results are consistent with higher firing costs crowding out financial leverage via increasing financial distress costs.

Environmental impact of fire

Fires are adverse events with tangible costs for property and human life. Quantification of the immediate and direct costs of fire provide a metric for understanding the social and economic impact of fire and for assessing progress in fire prevention and protection. In addition to their physical costs, fires have a range of less immediate and obvious adverse consequences on the natural environment. These include air contamination from the fire plume (whose deposition is likely to subsequently include land and water contamination), contamination from water runoff containing toxic products, and other environmental discharges or releases from burned materials. Current efforts to improve the sustainability of buildings focus on increasing energy efficiency and reducing the embodied carbon. This overlooks the fact that a fire event could reduce the overall sustainability of a building through the release of pollutants and the subsequent re-build. Several pieces of work exist on the quantification of the environmental impact of fire, but there is a need to pull this information together and to identify the technical gaps that still exist. This publication pulls together the project aims, discusses the sources reviewed, presents a framework that was postulated for quantifying the environmental impact of fire, describes the gaps in knowledge, and presents a plan forward. The research resulted in a more in-depth appreciation of the environmental impact of fire, data, tools and methods that might be undertaken to analysis the environmental impacts as part of a fire engineering analysis, and highlights areas where future research is needed.

Strength and environmental evaluation of stabilised Clay-PFA eco-friendly bricks

The most efficient way for the construction industry to approach sustainability is to reuse waste materials and by-products from other industrial activities. In this research Lower Oxford Clay (LOC) was combined with Pulverised Fly Ash (PFA) as target materials were stabilised with Lime, Portland Cement (PC) and blended binders comprising of Lime and PC blended with Ground Granulated Blast-furnace Slag (GGBS). There are technological, economic as well as environmental advantages and potential of utilising PFA, an industrial by-product from the coal industry, and GGBS a by-product from the steel industry, in the development of eco-friendly Clay-PFA building bricks. The need for sustainability, reduction of material processing costs such as reduction of firing costs is well established within the construction industry. The recycling of GGBS, or PFA as admixtures nowadays is much more than an alternative for reducing costs. In view of the huge demand for building bricks, along with non-availability of suitable soil, there is a need to explore alternative raw materials and energy efficient technologies for making bricks, whose final pricing is relatively low. Results based on the pilot industrial commercial trials from this research illustrated that all the key parameters of compressive strength, and environmental properties were within the acceptable engineering standards for masonry units. From the environmental and sustainability analysis results, the unfired LOC-PFA brick has shown energy-efficiency and suggests a remarkable economical alternative to firing building materials. With new technologies, invention and enhanced waste management, the use of eco-friendly building materials will be a great contribution to the concept of green building.

Preparation of Chamottes as a Raw Material for Low‐Cost Ceramic Membranes

Low‐cost ceramic membranes are usually prepared from a mixture of natural raw materials and some organic porogen agent such as starch. The fact that porogen must be completely eliminated during firing, leaving an interconnected porous structure, impose large firing times, increasing the final price. A study about the synthesis of porous chamottes as an alternative to organic pore formers was conducted to reduce firing costs. Chamottes were obtained from mixtures of clay and starch. Different starches were used and the influence of the composition and processing variables were studied. The viability of the porous chamottes was demonstrated.

A multi-objective genetic algorithm for a mixed-model assembly U-line balancing type-I problem considering human-related issues, training, and learning

Mixed-model assembly lines are increasingly accepted in many industrial environments to meet the growing trend of greater product variability, diversification of customer demands, and shorter life cycles. In this research, a new mathematical model is presented considering balancing a mixed-model U-line and human-related issues, simultaneously. The objective function consists of two separate components. The first part of the objective function is related to balance problem. In this part, objective functions are minimizing the cycle time, minimizing the number of workstations, and maximizing the line efficiencies. The second part is related to human issues and consists of hiring cost, firing cost, training cost, and salary. To solve the presented model, two well-known multi-objective evolutionary algorithms, namely non-dominated sorting genetic algorithm and multi-objective particle swarm optimization, have been used. A simple solution representation is provided in this paper to encode the solutions. Finally, the computational results are compared and analyzed.

Hiring Incentives And/Or Firing Cost Reduction? Evaluating the Impact of the 2015 Policies on the Italian Labour Market

In 2015 Italy adopted two different policies aimed at reducing labour market dualism and fostering employment: a generous permanent hiring subsidy and new regulations lowering firing costs and making them less uncertain. Using microdata for Veneto and exploiting some differences in the design of the policies, we evaluate the impact of each measure. Both contributed to double the monthly rate of conversion of fixed-term jobs into permanent positions. Moreover, around 40 per cent of new total gross hires with permanent job contracts occurred because of the incentives, whereas 5 per cent can be attributed to the new firing regulations. The new firing rules also made firms less reluctant to offer permanent job positions to yet untested workers. The possibility of benefitting from the incentives in case of a conversion also boosted temporary hiring, as it allowed firms to test for the quality of a job match.

Market reforms in the time of imbalance

We study the consequences of product and labor market reforms in a two-country model with endogenous producer entry and labor market frictions. We focus on the role of business cycle conditions and external constraints at the time of reform implementation (or of a credible commitment to it) in shaping the dynamic effects of such policies. Product market reform is modeled as a reduction in entry costs and takes place in a non-traded sector that produces services used as input in manufacturing production. Labor market reform is modeled as a reduction in firing costs and/or unemployment benefits. We find that business cycle conditions at the time of deregulation significantly affect adjustment. A reduction of firing costs entails larger and more persistent adverse short-run effects on employment and output when implemented in a recession. By contrast, a reduction in unemployment benefits boosts employment and output by more in a recession compared to normal times. The impact of product market reforms is less sensitive to business cycle conditions. Credible announcements about future reforms induce sizable short-run dynamics, regardless of whether the announcement takes place in normal times or during an economic downturn. Whether the immediate effect is expansionary or contractionary varies across reforms. Finally, lack of access to international lending in the wake of reform can amplify the costs of adjustment.

Informal work in a flexible labour market

Informal employment is a pervasive and persistent feature of most developing and developed economies. Labour taxation and labour market regulations are deemed two major causes for operating in the informal sector. Using data from France, Italy, and Spain, we analyse gross job flows and gross worker flows in the formal and informal sectors in the presence of lenient employment protection legislation, and investigate the way traditional policy interventions may favour transitions from one sector to the other. We show that optimal outcomes in terms of reduction and formalisation of informal jobs across the three countries examined are achieved with the combination of lower payroll taxes for permanent contracts and higher inspection rate for firms operating in the informal sector. Coupling lower firing costs with more frequent labour inspections also reduces informality, but this comes at the cost of an increased ratio of temporary to total employment.

Firing Frictions and the Mergers and Acquisitions Market

Following the adoption of state laws that increase firing costs, there is an immediate reduction in mergers and acquisitions (M&A) activity and increase in the percentage of withdrawn mergers. The reduction in M&A activity persists in the long-run and is most pronounced in labor intensive industries and for large deals. We corroborate these findings using a sample of publicly traded acquirers. Finally, event study analyses suggest that the market anticipates that firing costs will disproportionately affect active acquirers. Overall, this link between firing frictions and M&A activity suggests that post-merger labor force restructuring is an important source of M&A value.

Employee Representation Legislations and Innovation: Evidence from Manufacturing Sectors

We analyse how sectoral innovation outcomes are affected by national legislations of worker participation to corporate governance. We develop a model of employee representation laws (ERL) and innovation in the presence of incomplete labour contracts and predict heterogeneous ERL effects across different systems of dismissal regulation. We then perform a panel regression analysis, exploiting panel data for five countries over the 1977-2005 period and 21 two-digit manufacturing sectors. We find that ERL effects on aggregate innovation output are positive, statistically significant and higher in magnitude where national labour laws impose significant firing costs to the firm with respect to institutional settings in which firing costs are low or absent. These results are robust to possible technology selection dynamics, endogeneity and institutional changes in the legal system of patent protection. We also estimate ERL effects on innovation conditional on firing costs at an industry level and show that the impact of ERL is relatively larger in those sectors where the human capital contribution to production is higher. Our results have relevant implications for the optimal design of employee representation legislations.

Estimation of Dynamic Programming Models with Censored Dependent Variables

This paper considers the estimation of dynamic structural models where the decision variables are censored. We present and discuss several econometric issues and estimation methods under alternative stochastic structures of the unobservables, different potential sources of censoring, and different characteristics of the dataset (e.g., temporal dimension, frequency of corner solutions, or distribution of duration spells between two consecutive interior solutions). We use a labor demand model with kinked and lump-sum hiring and firing costs to illustrate the econometric problems and estimation methods.