Impact Of Employment Protection Legislation Research Articles

Does employment protection legislation affect employment and unemployment?

The article analyses the impact of employment protection legislation (EPL) on labour market outcomes. Despite widespread reforms that have reduced employment protection, the evidence on the effects of such reforms is inconclusive. Using data from sixteen European countries over the period 1985–2019, we analyse the impact of EPL on the dynamics of employment, employees and unemployment rates. In contrast to existing studies, we analyse both the existence of a linear relationship between EPL and labour market outcomes and the existence of a non-linear relationship, as well as interaction effects between EPL and economic growth. Our results show that employment protection does not explain the changes in employment, employees and unemployment rates. Therefore, labour reforms that have reduced employment protection by reducing dismissal costs and facilitating the use of temporary contracts have not had the presumed positive effects on employment and unemployment rates.

Employment Protection Legislation, Labour Market Dualism, and Fertility in Europe

Theoretically, whether a more loosely regulated labour market inhibits or fosters fertility in a society is ambiguous. Empirically, the few studies analysing the relationship between the strictness of employment protection legislation—the norms and procedures regulating labour markets’ hiring and firing processes—and fertility have found mixed evidence. This paper reconciles the ambivalent conclusions of previous studies by analysing the impact of employment protection legislation and labour market dualism on total fertility across 19 European countries between 1990 and 2019. Our results indicate that an increase in employment protection for regular workers positively affects total fertility. Nonetheless, an increasing gap between the regulation of regular and temporary employment—that is, labour market dualism—negatively impacts total fertility. These effects, of small-to-moderate intensity, are relatively homogeneous across age groups and geographical areas and are especially pronounced among the lower educated. We conclude that labour market dualism, rather than a “rigid” employment protection legislation, discourages fertility.

Fear of Labor Rigidities: The Role of Expectations on Employment Growth in Peru

AbstractThe impact of employment protection legislation has been thoroughly analyzed in varied contexts. Most studies highlight the potential harm of the legislation on labor outcomes, although evidence remains inconclusive. However, the literature has focused primarily on ex post impacts, analyzing the regulation’s effect after implementation. This article departs from that analysis to focus on anticipated or ex ante effects of labor regulation. More specifically, we study the role of firms’ expectations in future stricter labor legislation related to employment and income in Peru’s formal and informal labor market. To account for expectations, we used the number of news items related to the approval of a proposed law—the General Labor Law—to increase labor rigidities in Lima’s most important business newspaper. Using the Peruvian labor survey, we find a negative but decreasing relationship between firms’ expectations of a future stricter labor market and employment and average income. We also collect evidence that bigger news items and ones closer to the front page have a negative relationship with formal employment and income.

Employment protection legislation and household formation: evidence from Italy

While many studies have investigated the determinants of household formation and fertility in young adults, only a few have focused on the impact of employment protection legislation (EPL) on these outcomes. Moreover, to the best of our knowledge, no one has investigated how changes in EPL may alter the intentions of young individuals even before their realization. In this paper, we study the differential impact of the reduction in EPL associated with Italy’s 2015 Jobs Act on the household formation and fertility intentions of young Italians in various districts. We use data from a survey conducted on a sample of young people between the ages of 18-34 for the years 2012, 2015, 2016, and 2017. The identification strategy exploits local variation in the level of efficiency of the courts, measured in terms of the average duration of proceedings, to assess the existence of within-country and across-district heterogeneity in the reform’s impact. Indeed, firing costs used to be relatively greater in districts characterized by a longer duration of labor trials. The Jobs Act, by reducing firing costs and modifying the autonomy of judges, should have had a larger impact in districts with less efficient courts. According to our results, the reform seems to have indirectly leveled out the fertility and household formation intentions of young Italians living in districts with more and less efficient courts. Heterogeneities indicate that the results are mainly driven by older individuals and graduates who live in less disadvantaged areas.

Employment Protection and the Direction of Technology Adoption

We study the impact of employment protection legislation (EPL) on firms’ innovation choices, through an event-study analysis of several labor market reforms occurring in Europe over 2000-2016. Data on firms’ technology adoption from the Community Innovation Survey reveal that substantial drops in EPL for temporary workers prompt a reallocation of innovation efforts towards the introduction of new products, away from process innovation aimed at cutting labor costs. Among innovative firms, the share of product innovators increases by 15% of the pre-reform value (10pp in absolute terms), while the share of firms specializing in process innovation falls by 35% (also 10pp).

Employment protection, employment and unemployment rates in European Union countries during the Great Recession

ABSTRACT This paper analyses the impact of employment protection legislation on the evolution of employment and unemployment in European Union economies during the Great Recession. The results show that employment protection did not have a significant impact on employment growth. Regarding unemployment rates, we obtain contrasting results: high employment protection for temporary workers was associated with larger increases in unemployment rates, whereas high protection for permanent workers against individual dismissal was associated with lower increases in unemployment rates. Nonetheless, employment protection for permanent in conjunction with that for temporary workers had a positive impact on unemployment rates.

The effect of employment protection legislation on international trade

Analyzing the impact of domestic labor regulations on international trade is relevant, in part, because (i) trade negotiations may increasingly constrain countries' ability to implement trade policies and (ii) concerns over international competition driving countries towards a ‘race to the bottom’ in labor standards are rampant. Accordingly, utilizing data from roughly 30 countries across 21 manufacturing sectors over 2001–2009, we examine the impact of employment protection legislation on industry-level trade. Moreover, we attend to concerns over the endogeneity of labor regulations by employing an instrumental variables approach. By using disaggregated data along with the strategies aimed at addressing the endogeneity of labor regulations, we provide a novel contribution to the literature examining the trade and foreign investment implications of employment protection legislation. Overall, such legislation is witnessed to significantly encourage imports in relatively labor-intensive industries.

Quality of employment and employment protection. Effects of employment protection on temporary and permanent employment

The paper analyses the impact of employment protection legislation for permanent and temporary workers on total employment, permanent and temporary employment. Using panel data techniques, we investigate whether the level and the changes in employment protection for permanent and temporary workers affect the dynamics of total salaried employment, permanent employment, and temporary employment. The results of this paper contribute to a better understanding of the determinants of the evolution of employment and of the determinants of the quality of employment.

Employment protection legislation and labour income shares in Europe

The paper analyses the determinant elements of the evolution of labour income share, measured by the size of compensation of employees as a percentage of GDP in twenty European economies. In doing so, special attention is paid to the impact of employment protection legislation. Our study?s results show that the evolution of labour income share is explained by the economic growth, the growth of employment and unemployment rates, and the growth of real wages. Regarding employment protection, only employment protection for temporary workers matters. Our results shows that stricter provisions on the use of fixed-term and temporary agency contracts have a positive impact on the growth of the labour shares.

Unemployment duration and job-match quality in urban China: The dynamic impact of 2008 Labor Contract Law

We assess the dynamic impact of employment protection legislation in transition economies. We use the Chinese 2008 Labor Contract Law to identify the effects of employment protection on job-finding rates and subsequent job-match quality, in relation to the duration of workers' past unemployment. The causal effects are estimated in a sharp regression-discontinuity design, allowing for workers’ unobserved characteristics to jointly underlie their sequential and multidimensional outcomes in labor markets. Even though the law protracts unemployment duration in the short run, once an individual succeeds in finding a job, it improves job-match quality including better job security, higher wages and higher likelihood of receiving social insurance. However, where there is equal unemployment duration, migrants have lower job-finding rates and worse job-match quality than locals. Men have lower job-finding rates but better job-match quality than women. Future research should use longer panel data to evaluate long-term effects on labor markets.

Firms’ Adjustments to Employment Protection Legislation: Evidence from South Korea

The authors examine the impact of employment protection legislation on firm-level outcomes such as employment and profitability in South Korea. The 2007 Act on the Protection of Temporary Workers restricted the use of specific types of temporary contracts to a period of two years. Exploiting the fact that the impact of the reforms was greater for establishments that intensively used the affected temporary workers, the authors apply a difference-in-differences framework. Their results show that businesses responded to the Act by reducing the use of temporary contracts protected by the reforms and partially substituting them with permanent and other unprotected temporary contracts. As a result, the reform decreased overall employment level of establishments. Furthermore, the authors find that the newly introduced regulations had a limited negative impact on firms’ profitability. Evidence suggests that establishments also improved their capital intensity and their labor productivity in response to the labor reform.

Znaczenie prawnej ochrony zatrudnienia dla elastyczności zatrudnienia w krajach OECD

This article explores the impact of employment protection legislation on the elasticity of employment with respect to GDP. We present the essence and scope of changes in employment protection and specify the theoretical mechanisms of its impact on the labor market. We also measure this impact using data for 23 OECD countries in the 2002-2014 period. In the short term, we should expect the existence of a non-linear (U-shaped) relationship between the level of employment protection legislation (EPL) and the elasticity of employment. In the long term, however, EPL is perceived as neutral for the level of employment as flexible wages enable employers to accommodate changes in the labor market situation. The hypothesis of the long-term neutrality of EPL for labor market categories was confirmed with the use of panel cointegration tests. The hypothesis concerning the impact of EPL on short-term labor market adjustments was confirmed only for the global crisis period.

Firm dynamics and employment protection: Evidence from sectoral data

We analyze the impact of employment protection legislation (EPL) on firms’ entry and exit rates in a set of industries in thirteen OECD countries from the most recent version of the OECD Structural and Business Statistics Database. Using a difference-in-differences identification strategy, we find that more stringent EPL is associated to both lower entry and exit in industries characterized by higher worker reallocation intensity. We decompose the overall effect of EPL and find that both collective and individual dismissal regulations reduce the entry and exit rates. The negative effects of EPL are stronger for small firms. An extensive robustness analysis confirms our main findings.

Firm Dynamics and Employment Protection: Evidence from Sectoral Data

In this paper we analyse the impact of employment protection legislation (EPL) on firms' entry and exit rates for a large sample of industries of thirteen countries selected from the most recent version of the OECD Structural and Business Statistics Database. Using a differences-in-differences identification strategy, we find that more stringent EPL is associated to lower entry and exit rates, particularly in industries characterized by higher job reallocation intensity. We also find that both collective and individual dismissal regulations reduce firms' entry and exit rates. Interestingly, our results suggest that the negative effects of EPL is stronger in the case of firms between one and nine employees while, in the case of larger ones, results are not clear-cut. An extensive sensitivity analysis confirm the robustness of our findings.

Does Employment Protection Legislation Matter in Dualistic Labor Market? Panel Evidence from Indian Manufacturing Sector

The critics of pro-worker labor laws argue that employment protection legislation (EPL) hurts productivity and employment generation by creating rigidity in employment adjustments. The discourse on labor market rigidity has taken center stage in this neo-liberal phase of the global economy and is now being echoed by the state as well. However, the sharp growth in informal employment over the last two decades, cutting across developing as well as developed countries, puts a question mark over the tenability of the “flexibility thought” invoked by employers while demanding abrogation of job security legislation. In this study, we argue that there exists a substantial flexibility in contemporary labor markets. Using a panel dataset on twenty-eight industrial sectors across thirteen major states of India for the period 1999-2000 to 2007-2008, we find that EPL does not affect total factor productivity of industries. The impact of EPL is not significant even in highly volatile industries. The paper underlines the failure of the state to translate EPL into meaningful job security. The findings of this study suggest that the debates on labor regulations must be expanded to bring into its focus the issues of growing informalization and its consequences on workers.

Labour Market Regulation and Credit Access in Europe

The aim of our research is to investigate the impact of employment protection legislation on the firms’ credit access. This research is the first to address this topic by examining the impact of hiring and dismissal regulations on the probability to be denied credit or to be discouraged from applying for a loan in twelve EU countries. We find that greater flexibility in hiring employees and in structuring their working hours reduces the probability that the firm is credit constrained. In addition, we find that whereas banks facilitate credit access in contexts in which the dismissal procedures allow for the protection of the firms’ knowledge, firms tend to be discouraged from applying for a loan if a dismissal entails financial consequences. Our results are robust to selection bias as well as to alternative econometric approaches.

Are worker flows in France and the US so different? Revisiting French empirical evidence

This paper revisits empirical evidence on worker flows in France. We use much more recent and complete data than previous studies, and we innovate by estimating hires and separations separately for open-ended contract workers. Focusing on open-ended contracts for France yields a picture strikingly close to the US labor market. Our results downplay the hypothesis, previously stated in the literature, that downsizing French firms would adjust through reduction in hiring because of the rigidity of employment protection legislation. Such results call for more work to be done on the impact of employment protection legislation on labor flows.

Search, flows, job creations and destructions

ABSTRACT This paper presents a short overview of dynamic models of labor markets with transaction costs. It shows that these models have deeply renewed the understanding of job search, job flows, job creations and destructions, unemployment and wage formation. It argues that this renewal provides a very useful toolkit for analyzing important economic policy issues such as the optimal level of unemployment benefits, the funding of unemployment insurance and the impact of employment protection legislation.

Impact of employment protection legislation on employment and exporting in select African countries

Labour market flexibility is an important issue in both development and labour economics. More flexibility in the labour market is believed to facilitate job creation, but also makes it easy for employers to terminate employment contracts and may be in conflict with the notion of decent jobs as promoted by the International Labour Organization and workers' unions. It is therefore not surprising that labour market flexibility or inflexibility has received a lot of attention in the extant literature. Using a sample of about 4700 firms from six African countries, we investigate the impact of restrictive labour regulation on a number of economic outcomes and find that more restrictive labour market regulations are detrimental to export propensity, export intensity, investment and employment. Policy-makers must be cautious, however, when implementing employment regulations as too flexible regulations may benefit employers at the expense of employees.

How does employment protection legislation influence hiring and firing decisions by the smallest firms?

This paper examines the impact of employment protection legislation (EPL) on hiring decisions by own-account workers and firing decisions by very small firms (one to four employees). Using data from the EU-15 countries, our results show that the strictness of employment protection legislation is negatively related to both these types of decisions, and hence, to labour mobility among the smallest firms. This new evidence may be useful for governments aiming to create a more enabling macro-environment for employment and productivity growth.