TEMPORARY JOB PROTECTION AND PRODUCTIVITY GROWTH IN EU ECONOMIES Venerdì 30 Settembre 2011 Mirella Damiani* – Fabrizio Pompei* –Andrea Ricci** ([email protected]) ([email protected]) ([email protected]) *Department of Economics, Finance and Statistics University of Perugia **ISFOL
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TEMPORARY JOB PROTECTION AND PRODUCTIVITY …...Outline of the presentation Literature Review and Hypotheses Differences in labour productivity and TFP growth rates (country-sectoral
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TEMPORARY JOB PROTECTION AND PRODUCTIVITY GROWTH IN EU ECONOMIES
*Department of Economics, Finance and StatisticsUniversity of Perugia
**ISFOL
Aim of the paper
employment protection of temporary workersand
product market regulationplay on
Total Factor Productivity (TFP) growthIn 14 EU countries and 10 NACE Rev.1.1 sectors
Period 1995-2007
To explore the role that
Outline of the presentation
Literature Review and Hypotheses
Differences in labour productivity and TFP growth rates (country-sectoral differentials )
Employment protection and product market regulation: levels and variations over the period 1995-2007
Propensity to employ temporary workers (country-sector differentials)
Labour market and product market regulation as determinants of TFP country-sector differentials
Literature Review of employment protection and productivity
Articles Countries Time Impact on productivity
Burgess et al. (2000) 7 OECD countries 1960-1992 Negative effect in the speed of reallocation
Ichino e Riphan (2001) Italy 1993-1995 Negative effect on the workers’ effort
Bartelsman et al (2004) 17 manufacturing sectors and 18 OECD countries 1984-1998
Ambiguous effects: they are negative only in systems with intermediate bargaining centralisation
Micco e Pages (2004)18 countries (11 developed.7 developing) analysis at sector and firm level
Anni '80 e '90 Negative effects only in industries with higher propensity to lay off
Auer et al (2005) 13 EU countries 1992-2002 Positive: long-term employment relationship
Allard e Lindert (2006) 21 countries 1980-2001 Negative : contraction of outsider’ s human capital in the long-term
Boeri e Garibaldi (2007) Italy 1995-2000 Increasing flexibility at the margin reforms: inaction share reduction and role of decreasing returns
OECD (2007) 18 OECD countries 1982-2003 Negative influence on TFP. Ambiguous effects of the flexibility at the margin reforms.
Dew-Becker e Gordon (2008) 14 European countries 1978-1995
1995-2003Positive short-term effect in the trade-off productivity/employment
Bassanini et al (2009) 16 OECD countries and 19 industries 1982-2003 Negative effects in sectors showing higher
propensity to lay off
Hypotheses
A positive level of protection of temporary workersfavours good performance of TFP growth
solution of hold-up problems concerning investments in firm-specificskills (Belot,Boone and van Ours, 2007; Ricci and Waldmann,2011)
Well regulated temporary contracts may be an effective tool to perform a screening process and increase the probability to achieve permanent employment positions
Product market regulation and employment protection influence TFP growth rates
3 Data sourcesEU KLEMS, Release November 2009TFP growth
OECDEmployment Protection Legislation of Temporary workers EPLTEmployment Protection Legislation of Permanent workers EPLPVenn D., (2009). Legislation , collective bargaining and enforcement: updating the OECD employment protection indicatorsProduct Market Regulation PMR, updated 2007Conway, P. and G. Nicoletti (2006), ‘Product Market Regulation in the Non-Manufacturing Sectors of OECD Countries: Measurement and Highlights’, OECD Economics Department Working Paper, No 530
EUROSTATR&DTemporary workers:persons with seasonal employment, persons engaged by an agency or employment exchange and hired to a third party to perform a specific task (unless there is a written work contract of unlimited duration with the agency or employment exchange), and persons with specific training contracts
Variations in the absolute value of the index that ranges from 0 to 6
Growth of proportion of temporary workers with respect to initial levels (1995-2007)
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
Netherlands
Sweden
United Kingdom
Spain
-4-2
02
46
Ave
rage
ann
ual g
row
th o
f the
sha
reof
tem
pora
ry w
orke
rs o
ut o
f em
ploy
ees
(%)
0 10 20 30 40Share of temporary workers out of employees in 1995 (%)
Proportion of temporary workers at beginning and end of period1995-2007
AustriaBelgium Czech RepublicDenmark
FinlandFranceGermany
HungaryIreland
Italy
Netherlands Sweden
United Kingdom
Spain
Weighted average 2007
Wei
ghte
d av
erag
e 19
95
1015
2025
3035
405
Sha
re o
f tem
pora
ry w
orke
rs o
ut o
f em
ploy
ees
in 2
007
(%)
0 10 20 30 405 15 25 35Share of temporary workers out of employees in 1995 (%)
UK is a benchmark country
Econometric strategy (1)
i=1,…14 countries
j=1, …10 sectors
t= 1995, …2007 years
Estimator:Feasible Generalised Least Square PanelHeteroskedastik but uncorrelated error structurePanel-specific AR(1) autocorrelation structure
Difference-in-difference approach++
Growth rate of TFPInteraction between Employment protection level and sectoral propensity to employ temporary workersInteraction between Employment protection variations and sectoral propensity to employ temporary workersProduct Market Regulation in level and differences Country- by-time dummies Sector dummies
The difference of the propensity to employ temporary workers between different
industries multiplied by the
different stringency of EPL
explains differences in TFPgrowth rates at sector-country level
Econometric strategy (2)
i=1,…14 countries
j=1, …10 sectors
t= 1995, …2007 years
Estimator:Feasible Generalised Least Square PanelHeteroskedastik but uncorrelated error structurePanel-specific AR(1) autocorrelation structure
Difference-in-difference approach with the distance from the technological frontier and R&D++
Ratio of TFP level of specific country-industry to the TFP level to the leader of that industryRD intensity = RD expenditure/sectoral GDP
This study shows that the protection of temporary workers positively influences TFP growth rates of European economies
A plausible explanation: this protection fosters theaccumulation of firm-specific human capital and allowstemporary jobs to function better as stepping stones togenerally preferable permanent jobs
This study confirms that the excessive protection of the product market (services in particular) negatively influences the TFP growth
This study suggests that a rebalancing of employment protection (advocated by OECD, Employment Outlook 2010), necessarily calls for well regulated schemes for temporary jobs
Labour productivity trends in Italy, France, Germany and UK (Total Economy)
TFP trends in Italy, France, Germany and UK (Total Economy)
Tabella 1: Quota delle ore lavorate in professioni skilled,semiskilled, e unskilled nel 1993 e 2006 e relativa variazione.Settore privato, classe di età 18-64. Italia.
UnskilledISCO 9
Semi-skilledISCO 4-8
SkilledISCO 1-3
Quota 1993 0.12 0.69 0.19
Quota 2006 0.11 0.64 0.25Variazione in punti % -0.8% -5.0% 5.8%Dati: Rilevazione sulle forze di lavoro
The evolution of Job quality distribution in Italy: polarization or compression?
Evidence from Naticchioni and Ricci (2011):
Tabella 2: Quota delle ore lavorate da laureati impiegati inprofessioni skilled, semiskilled, e unskilled nel 1993 e 2006 erelativa variazione. Settore privato, classe di età 18-64. Italia.