Strictness Of Employment Protection Legislation Research Articles

Temporary agency employment: A supplement to regular jobs – under certain circumstances

In countries with strict employment protection legislation, firms may seek to replace regular by atypical jobs in order to cut wages or to become more flexible. In Germany, the number of unprotected temporary jobs is comparatively low. During the past decades, temporary agency employment, however, has increased considerably and the share of agency workers is now above the EU average. Using German establishment data, the analysis draws on longitudinal (generalized method of moments) and cross-sectional (matching and difference in differences) methods to evaluate whether agency workers replaced or supplemented regular workers during and after the Great Recession of 2008/2009. The study finds that hiring (more) agency workers made it possible for user firms among Germany’s core manufacturing industries to employ a larger number of regular workers at the same time. In specific sectors and regions, temp agencies therefore provided an alternative to government-sponsored instruments such as short-time work schemes. Obviously, from the view of workers, many disadvantages remain, even more so as it is rare for temp spells to offer a stepping stone into regular employment.

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.

Real wages and the business cycle in Turkey

Abstract The article analyzes the direction and scope of the responsiveness of real wages to the business cycle in Turkey using longitudinal data from 2005 to 2015. We found that wages in Turkey are procyclical; one percentage point increase in the unemployment rate induces a 0.6% decline in real wages. There is a variation in the patterns along the lines of wage distribution among the subgroups with relations to skills. Less-educated workers have acyclical wages. Compatible with this evidence, we found that the workers who earn around the minimum wage also have acyclical wages. High share of minimum wage earners suppresses wage cyclicality. Consistent with strict employment protection legislation and loose wage determination, wages of relatively high-income employees who mostly have formal work arrangements are procyclical.

US and them: Job quality differences between natives and immigrants in Europe

AbstractUsing microdata from the European Union Labour Force Survey (EU‐LFS) and aggregate indicators of labour market institutions, this article compares the job quality of native and non‐native workers across European countries and analyses the impact of the institutional settings on the job quality differential between both groups. The LFS is used to measure a job quality index for the period 2005–2017. We find that some immigrant groups fare worse than natives, the contribution of the “composition effect” to explain this differential is large, and the institutional framework affects the immigration gap in job quality. In particular, some labour market institutions (more centralized wage bargaining, stricter employment protection legislation) tend to be detrimental for immigrants relative to natives, while integration policies seem to work well in reducing these differences.

The disability employment gap in European countries: What is the role of labour market policy?

Across Europe, the labour market participation of persons with disabilities remains lower than that of persons without a disability. Our research examines this disability employment gap, looking specifically at its variation by country and gender. Additionally, we test the influence of labour market policies – testing both the social investment perspective and the welfare scepticism perspective – on the size of the gap, in an effort to determine whether a more generous welfare state raises or lowers the employment rate of people with disabilities. Using the European Union Statistics on Income and Living Conditions (EU-SILC), we show that Southern European countries have the smallest disability employment gap. Whereas stricter employment protection legislation is found to be beneficial for people with disabilities on the labour market, other labour market policies specifically intended to benefit this group do not strongly affect their chances on the labour market. These findings support the social investment perspective and show that social policies can have a positive effect on the employment of people with disabilities.

Job Tasks and Wages in Developed Countries: Evidence from PIAAC

This paper addresses the empirical relationship between job tasks and wages for a harmonised sample of 19 developed countries. We do so by using worker-level PIAAC data to account for task heterogeneity within occupations. Our contribution is threefold: First, we compute abstract, routine and manual task measures that are found to be well-validated visa-vis previous research. Second, we estimate task prices, and find that a one-standard-deviation increase in abstract tasks is related to a 3.3-log-point wage premium, whereas there is a 2.6 to 2.9-log-point wage penalty for each standard deviation of routine (manual) tasks. Development factors and labour market institutions, particularly union coverage and strictness of employment protection legislation, seem to play a role in the differences in all three task prices.

Two Wrongs Make a ‘Right’? Exploring the Ethical Calculus of Earnings Management Before Large Labor Dismissals

This paper examines whether firms strategically legitimize large labor dismissals (LLDs) by performing ex-ante downward earnings management. We further assess whether the effect is larger under stakeholder pressure and whether these practices influence the external perception of firms’ behavior. As laying off employees without an economic reason is perceived as a breach of the social contract, stakeholders pressure firms to provide economic justification for LLDs. We argue that firms strategically legitimize LLDs by artificially worsening their financial performance through downward earnings management. From a sample of European listed firms for the period 1998–2014, using a propensity score matching model to control for differences in observable characteristics between LLD and non-LLD firms, we find that firms manage their earnings downward in the year prior to LLDs. These results are more pronounced in the presence of high stakeholder pressure. As such, firms with (1) stronger trade unions, (2) higher visibility, (3) stricter employment protection legislation, and (4) more stakeholder-oriented legal environments have stronger incentives to manage earnings downward before LLDs. Finally, we document that downward earnings management prior to LLDs is effective at legitimizing LLDs, offsetting the negative external perceptions of firms in the aftermath of LLDs. This study contributes to the business ethics literature by identifying unintended consequences of stakeholder pressure around LLDs. It also brings important empirical insights into how ethically questionable decisions are strategically legitimized through further unethical practices.

Financial constraints and workforce environment: An international investigation

AbstractWe examine the association between financial constraints and workforce environment. Using data from 43 countries for the period 2002–2017, we find that financially constrained firms tend to have poor workforce environments. In addition, we investigate the impact of country‐level employment protection legislation (EPL) on this association. It is evident from our results that the investment decisions of firms under financial constraints are conditional on the strictness of EPL. Our findings provide important practical implications for international policy makers, in particular, about the significance of EPL for workforce environments. Our study also contributes to the scant literature on the determinants of workforce environment and provides robust international evidence on the detrimental effects of financial constraints on workforce environments.

Do you feel like an insider? Job security and preferences for Flexibilization across Europe

AbstractThe paper analyses the determinants of public opinion on flexibilisation of work contracts. While the literature on new labour market divides has rapidly expanded, few contributions directly look at employees’ demands for labour market regulation. By using a multi‐level data set for 25 European countries, we find that the subjectively assessed job security is an important and valuable predictor of preferences for flexibilisation. In particular, those with very low and very high levels of perceived job security prefer flexibilisation compared to those with medium levels. We also show that the effect is stronger in countries with stricter employment protection legislation. The findings contribute to the literature on new divides of labour market politics in several ways. First, our empirical operationalization is related directly to the core of insider‐outsider theory, the protection of work contracts. Second, subjective assessment of employment security yields important complementary insights into a debate usually focusing on objective measures. Third, we find that the (subjective) divide is context dependent; it is much more visible in countries where employment protection regulation is strong.

Educational differences in macro-level determinants of early exit from paid work: a multilevel analysis of 14 European countries

The aim of this study was to identify macro-level determinants of early work exit and investigate whether the effects of these determinants differ across educational groups. We used data from the Survey on Health, Ageing and Retirement in Europe (SHARE) (2011–2013) and the English Longitudinal Study of Ageing (ELSA) (2010/2011–2012/2013) as well as macro-level data and included 10,584 participants in 14 European countries. We used logistic multilevel analyses to examine educational differences in macro-level determinants of early work exit. Macro-level determinants were: minimum unemployment replacement rates, expenditure on active labour market policies (aimed to help the unemployed find work) and passive labour market policies (unemployment and early retirement benefits), employment protection legislation (costs involved in dismissing individuals), unemployment rates, statutory pension age and implicit tax on continued work. We found low-educated workers to be more at risk of early work exit than higher educated workers. In low-educated men, higher unemployment replacement rates, higher expenditure on passive labour market policies, stricter employment protection legislation and a higher implicit tax on continued work were associated with a higher risk of early work exit, whereas no macro-level factors were associated with early work exit in highly educated men. In women, a higher expenditure on passive labour market policies and a higher implicit tax on continued work were determinants of early work exit, regardless of educational level. To conclude, low-educated men seem to be especially responsive to the effects of pull factors that make early retirement financially more attractive.

Transitions from temporary employment to permanent employment among young adults: The role of labour law and education systems

Temporary work is common across Europe, especially among young people. Whether temporary employment is a transitory stage on the road to standard employment, and whether this varies depending on institutional contexts, is controversial. This article investigates variability in transition rates from temporary to permanent employment across Europe, and how this is related to employment protection legislation (EPL) and the vocational specificity of education systems. We utilize harmonized panel data from the European Union Statistics on Income and Living Conditions, covering 18 European countries and including 34,088 temporary workers aged 18–30. The results show that stricter EPL is associated with lower rates of transitions to permanent employment, while partial deregulation, with strict EPL for permanent contracts but weaker EPL for temporary contracts, is associated with higher transition rates. Vocationally specific education systems have higher transition rates, on average. Moreover, the role of EPL is conditional on the degree of vocational specificity.

Temporary Employment, Informal Work and Subjective Well-Being Across Europe: Does Labor Legislation Matter?

Taking the individual data from the European Social Survey of 2004 and 2010, the authors of this paper investigate how employment type (permanent, temporary or informal employment) affects subjective well-being in respect to employment protection legislation across European countries. Our study outcomes are in line with previous research disclosing the negative impact of being temporally or informally employed on subjective well-being. The additional contribution of this study is the rigorous analysis of how employment protection legislation (EPL) moderates this effect by applying the multilevel modeling approach for 27 countries. In countries with strict EPL temporary and informal workers are significantly less satisfied with their lives than permanent employees. In countries with liberal EPL no significant decreasing effect from temporary or informal employment on people’s subjective well-being was found.

Impacts of Labor Market Institutions and Demographic Factors on Labor Markets in Latin America

This paper documents recent labor market performance in the Latin American region. The paper shows that unemployment, informality, and inequality have been falling over the past two decades, though still remain high. By contrast, productivity has remained stubbornly low. The paper, then, turns to the potential impacts of various labor market institutions, including employment protection legislation (EPL), minimum wages (MW), payroll taxes, unemployment insurance (UI) and collective bargaining, as well as the impacts of demographic changes on labor market performance. The paper relies on evidence from carefully conducted studies based on micro-data for countries in the region and for other countries with similar income levels to draw conclusions on the impact of labor market institutions and demographic factors on unemployment, informality, inequality and productivity. The decreases in unemployment and informality can be partly explained by the reduced strictness of EPL and payroll taxes, but also by the increased shares of more educated and older workers. By contrast, the fall in inequality starting in 2002 can be explained by a combination of binding MW throughout most of the region and, to a lesser extent, by the introduction of UI systems in some countries and the role of unions in countries with moderate unionization rates. Falling inequality can also be explained by the fall in the returns to skill associated with increased share of more educated and older workers.

Does Strict Employment Protection Legislation Influence The Rate Of Workplace Accidents?

This paper explores the correlation between employment protection legislation (EPL) and the rate of workplace accidents, using a theoretical model and data for OECD countries. EPL has been rolled back in most OECD countries since the mid‐80s. In parallel, there has been a decrease in the number of workplace accidents reported, especially non‐fatal ones. We ask the question whether less employment protection could have contributed to the reduction in accident rates, e.g. by reducing workers’ willingness to report accidents. To investigate, we build a theoretical model, which suggests that the incentives to report workplace accidents are complex and could even result in a negative relationship between EPL and accident reporting. It is possible, e.g. that labour market reforms reduce job security and incentivise behaviours that bring immediate benefits, like accident reporting. The empirical analysis, using a database of 16 OECD countries, supports the view that the dilution of EPL for regular contracts has increased the rate of accident reporting. This result is robust after controlling for a number of other factors, such as the unemployment rate, economic growth, unemployment benefits, trade union density and temporary work.

Labor Market Institutions and Performance Economic Within Trial Labor Market Models: Flexibility, Rigidity, and Flexicurity

The purpose of this article is to identify economic performance through three labor market models (flexibility, rigidity, and flexicurity) that result from the effect of the labor market regulation. After conducting a comparative analysis of the flexibility, rigidity, and flexicurity models of the labor market using a feasible generalized least squares (FGLS) applied to 18 organisation for economic co-operation and development (OECD) countries for the period between 2005 and 2013, we reached the following results. First, the effect of the labor market regulation on the unemployment rate appears to be particularly important for demographic groups (women and young people) on the flexible labor market. The union density and bargaining coverage seem to have the best results in the unemployment rate on the flexible market. More coordinated collective bargaining appears to reduce unemployment on the rigid labor market compared with the flexible one. However, our results are opposed to the neoclassical assertions which suggest that women are excluded from the permanent employment when a strict employment protection legislation (EPL) is excised. We also show that the replacement rate, the duration of unemployment benefits, the active labor market policies, permanent immigration inflows, and the tax wedge seem to have the best results on the flexible labor market, while the other variables have mixed effects on the different models of the labor market. These findings can provide policy makers and regulators with a better understanding of the performance of the flexible labor market and its behavior in the face of labor market institutions and adverse economic shocks. In fact, the government should liberalize strict labor laws.

The Transition to the Knowledge Economy, Labor Market Institutions, and Income Inequality in Advanced Democracies

AbstractThe transition from Fordism to the knowledge economy in the world’s advanced democracies was underpinned by the revolution in information and communications technology (ict). The introduction and rapid diffusion ofictpushed up wages for college-educated workers with complementary skills and allowed top managers and CEOs to reap greater rewards for their own talents. Despite these common pressures, income inequality did not rise to the same extent everywhere; income in the Anglo-Saxon countries remains particularly unequally distributed. To shed new light on this puzzle, the authors carry out a panel data analysis of eighteenoecdcountries between 1970 and 2007. Their analysis stands apart from the existing empirical literature by taking a comparative perspective. The article examines the extent to which the relationship between the knowledge economy and income inequality is influenced by national labor market institutions. The authors find that the expansion of knowledge employment is positively associated with both the 90/10 wage ratio and the income share of the top 1 percent, but that these effects are mitigated by the presence of strong labor market institutions, such as coordinated wage bargaining, strict employment protection legislation, high union density, and high collective bargaining coverage. The authors provide robust evidence against the argument that industrial relations systems are no longer important safeguards of wage solidarity in the knowledge economy.

Shocks and Labour Cost Adjustment: Evidence from a Survey of European Firms

We use firm-level survey data from 25 EU countries to analyse how firms adjust their labour costs (employment, wages and hours) in response to shocks. We develop a theoretical model to understand how firms choose between different ways to adjust their labour costs. The basic intuition is that firms choose the cheapest way to adjust labour costs. Our empirical findings are in line with the theoretical model and show that the pattern of adjustment is not much affected by the type of the shock (demand shock, access-to-finance shock, ‘availability of supplies’ shock), but differs according to the direction of the shock (positive or negative), its size and persistence. In 2010-13, firms responding to negative shocks were most likely to reduce employment, then hourly wages and then hours worked, regardless of the source of the shock. Results for the 2008-09 period indicate that the ranking might change during deep recession as the likelihood of wage cuts increases. In response to positive shocks in 2010-13, firms were more likely to increase wages, followed by increases in employment and then hours worked suggesting an asymmetric reaction to positive and negative shocks. Finally, we show that strict employment protection legislation and high centralisation or coordination of wage bargaining make it less likely that firms reduce wages when facing negative shocks. JEL Classification: D21, D22, D24

Shocks and Labour Cost Adjustment: Evidence from a Survey of European Firms

We use firm-level survey data from 25 EU countries to analyse how firms adjust their labour costs (employment, wages and hours) in response to shocks. We develop a theoretical model to understand how firms choose between different ways to adjust their labour costs. The basic intuition is that firms choose the cheapest way to adjust labour costs. Our empirical findings are in line with the theoretical model and show that the pattern of adjustment is not much affected by the type of the shock (demand shock, access-to-finance shock, ‘availability of supplies’ shock), but differs according to the direction of the shock (positive or negative), its size and persistence. In 2010-13, firms responding to negative shocks were most likely to reduce employment, then hourly wages and then hours worked, regardless of the source of the shock. Results for the 2008-09 period indicate that the ranking might change during deep recession as the likelihood of wage cuts increases. In response to positive shocks in 2010-13, firms were more likely to increase wages, followed by increases in employment and then hours worked suggesting an asymmetric reaction to positive and negative shocks. Finally, we show that strict employment protection legislation and high centralisation or coordination of wage bargaining make it less likely that firms reduce wages when facing negative shocks.

Impacts of Labor Market Institutions and Demographic Factors on Labor Markets in Latin America

This paper documents recent labor market performance in the Latin American region. The paper shows that unemployment, informality, and inequality have been falling over the past two decades, though still remain high. By contrast, productivity has remained stubbornly low. The paper, then, turns to the potential impacts of various labor market institutions, including employment protection legislation (EPL), minimum wages (MW), payroll taxes, unemployment insurance (UI) and collective bargaining, as well as the impacts of demographic changes on labor market performance. The paper relies on evidence from carefully conducted studies based on micro-data for countries in the region and for other countries with similar income levels to draw conclusions on the impact of labor market institutions and demographic factors on unemployment, informality, inequality and productivity. The decreases in unemployment and informality can be partly explained by the reduced strictness of EPL and payroll taxes, but also by the increased shares of more educated and older workers. By contrast, the fall in inequality starting in 2002 can be explained by a combination of binding MW throughout most of the region and, to a lesser extent, by the introduction of UI systems in some countries and the role of unions in countries with moderate unionization rates. Falling inequality can also be explained by the fall in the returns to skill associated with increased share of more educated and older workers.

Кључне димензије квалитета запослености у Србији

Предмет рада је критичко сагледавање стања и динамике на тржи-шту рада у Србији, са посебним освртом на квалитет запослености уодносу на земље чланице ЕУ. У раду се, најпре, анализирају нова ин-ституционална решења у овој области, која за циљ имају већу флек-сибилност на тржишту рада, при чему се посебна пажња придаје EPLиндексу (индексу законодавне заштите запослења). Потом се, студи-озно и детаљно, сагледава квалитет запослености у Србији. Налазидо којих се у истраживању дошло указују на то да су, и поред побољ-шања на тржишту рада у Србији током претходних неколико година,основни индикатори у току 2016. године и даље били знатно нижинего у ЕУ-28. Осим тога, анализом бројних релевантних показатељадошло се до закључка да постоје изражени проблеми повезани саквалитетом запослености у Србији – релативно високо учешће ра-њиве запослености, висока стопа неформалне запослености и нижеучешће запослених радника који имају уговоре на неодређено време.Резултати спроведеног истраживања указују и на то да је субјективниосећај сигурности радног места у Србији мањи него у ЕУ-28, што јепотврђено и кроз објективне податке o преласцима из једног статусана тржишту рада у други, који доноси нижи ниво сигурности запо-слења – у Србији је удео оваквих прелазака виши него у ЕУ-28.