Employment Protection Legislation and Workers Wellbeing

1
Employment Protection Legislation and Workers
Wellbeing

• Andrea Salvatori
• University of Warwick

2
What is Employment Protection Legislation? (OECD
1999, 2004)

• EPL-Perm Firing Costs for Permanent Workers
• EPL-Temp Restrictions on the use of Temporary
  Contracts
• Restricts number of renewals
• Limits cumulative duration
• Limits the types of jobs

3
Motivation (1)

• Several EU countries have relaxed restrictions on
  Temp Empl, leaving unchanged firing costs for
  Perm workers
• Literature on the effects of EPL on un/employment
  (Freeman 2005)

4
Motivation (2)

• EU Lisbon Strategy more and better jobs
• What are the effects of regulation on workers
  wellbeing?
• Subjective Wellbeing useful in policy evaluation
  when observed behavior has ambiguous welfare
  implications
• (Di Tella and MacCulloch 2006 Layard 2006)

5
What we do

• Job Satisfaction equations using ECHP data from
  13 EU countries over the period 1995-2001
• Time-series EPL indicator from OECD (2004)

6
Theoretical Background

• Several classes of models used to study EPL and
  un/employment.
• Matching models
• Efficiency wage
• Insider-Outsider
• Welfare implications mostly ambiguous, but

7
Theoretical Background

• EPL may affect Wellbeing
• Directly (severance pay)
• Through the wage
• Through transition probabilities

8
Theoretical Background
But Political Economy literature usually assumes
Temp Workers oppose EPL for Perm Workers
9
Empirical Literature

• Clark and Postel-Vinay (2005)
• Males from 5 waves of ECHP
• OECD cross-section overall EPL indicator
• Negative Correlation between EPL and Job
  security
• Wasmer (2006)
• 1994-2003 data for Perms in Canada
• Regional variation in EPL
• EPL increases Job Stress

10
The Empirical Model

• Random Effects Ordered Probit
• Job Satisfaction and Satisfaction with Security
  as dependent variables
• EPL-Temp and EPL-Perm among the regressors
• Cluster-adjusted Standard Errors, but small
  number of clusters suggests conservative critical
  values

11
The Empirical Model

• Individual Data ECHP, 1995-2001
• 13 EU countries
• EPL indicators OECD 2004
• Sample 16-65 years old
• Working gt15hrs
• Casual/Seasonal Workers excluded
• Regional Data EUROSTAT REGIO database

12
Endogeneity of EPL

• Correlated with country (rather than individual)
  differences
• Reforms encouraged by OECD, IMF, and EU and
  implemented by governments of different
  orientations (Freeman 2005)
• Controlling for likely determinants of reforms
  demographics, unemployment, country and time
  effects
• Because of the political process, EPL reforms
  unlikely to be affected by transitory shocks to
  Job Satisfaction

13
Results for Permanent Workers

• EPL-Perm from min (UK) to median (Spain)
  equivalent to 58 wage

• Statistically weak evidence of large effects

• EPL-Temp from min (UK, Ire) to median (Spain)
  equivalent to -36 wage

14
Permanent Workers Public Vs Private Sector

• Statistically well-defined negative effect of
  EPL-Temp on satisfaction of permanent workers in
  private sector
• Weaker insiders?

• Public and Private sector maybe different because
  of
• Different regulations
• Different uncertainty

15
Results for Temporary Workers

• Statistically clear evidence of a negative effect
  of EPL-Temp on satisfaction
• Italian reforms equivalent to 44 wage
• Statistically weak evidence of positive effect of
  EPL-Perm on satisfaction

• In subgroups, these results hold for women and
  the young

16
Results for Temporary Workers

• No clear evidence of correlation between
  regulation and Satisfaction with Security
• Surprising signs for Female and Public sector

17
Temporary WorkersPublic vs Private Sector

• Negative effect of EPL-Temp on Satisfaction is
  driven by private sector
• But that effect, again, does not come through
  security
• Again, some evidence that EPL-Perm may have a
  positive effect

18
The role of transition probabilities

• Multinomial Logit from Temp/Perm to
• 1-2) Temp/Perm employment
• 3) Out of employment w/o benefits
• 4) Out of employment w/ benefits
• Predicted probabilities then used as regressors
• Controlling for unemployment benefits
• Accounting for transition probabilities
• Do temporary workers likely to move to permanent
  employment favour EPL-Perm?

19
The role of transition probabilities

• Very preliminary results
• Results are statistically fragile due to weak
  identification strategy
• EPL-Temp remains negative and significant for
  temporary employees
• Weak evidence that temporary employees likely to
  move to a permanent job benefit from EPL-Perm
• Unemployment w/ and w/o UB have different signs,
  but not significant
• Only tentative conclusions, need to work on
  identification

20
Conclusions

• First evidence on wellbeing effects of labour
  market regulations
• Permanent workers
• EPL-Perm is positive (statistically weak)
• EPL-Temp is negative (clear in the private
  sector)
• Insider-Outsider, Stagnant Labour Market
• Temporary workers
• EPL-Perm is positive (weak) anticipation of
  future protection?
• EPL-Temp is negative, but does not seem to come
  through satisfaction with security

21
Implications

• Partial deregulation is associated with an
  increase in workers wellbeing
• This contrasts with Blanchard and Landier (2001)
  (Youth in France)
• If anything, relaxing protection for permanent
  workers has a negative effects on ALL workers