TEMPORARY JOB PROTECTION AND PRODUCTIVITY GROWTH IN EU ECONOMIES

Venerdì 30 Settembre 2011

Mirella Damiani* – Fabrizio Pompei* –Andrea Ricci**(mirelladamiani@libero.it) (fpompei@unipg.it) (andr.ricci@gmail.com)

*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

Countries and sectors

Countries Sectors

Austria 1) Agriculture

Belgium 2) Mining and Quarrying

Czech Republic 3) Manufacturing

Denmark 4) Energy, Gas, Water

Spain 5) Constructions

Finland 6) Wholesale and Retail Trade

France 7) Hotels and Restaurants

Germany8) Transport, Storage and Communications

Hungary

Ireland

Italy9) Finance and Real Estate

Netherlands

Sweden10) Community, Social and Personal Services

United Kingdom

Growth accounting European Economies 1995-2007

 

Growth rate of Value Added

Hours Worked

Labour Productivity

Labour Composition

ICT capital per Hour

Non-ICT capital per

HourTFP

LP contributions

from knowledge economy

Austria 2.43 0.52 1.90 0.20 0.43 0.39 0.88 1.51Belgium 2.13 0.63 1.50 0.21 0.77 0.74 -0.22 0.76Denmark 1.87 0.83 1.03 0.10 0.84 0.38 -0.29 0.65Finland 3.57 0.84 2.73 0.23 0.50 0.46 1.54 2.27France 2.14 0.34 1.79 0.33 0.27 0.59 0.60 1.21Germany 1.60 -0.09 1.69 -0.01 0.38 0.64 0.67 1.05Ireland 6.94 1.93 5.01 0.54 0.41 3.46 0.61 1.56Italy 1.42 0.65 0.77 0.12 0.25 0.70 -0.29 0.07Netherlands 2.69 0.78 1.91 0.30 0.53 0.50 0.58 1.41Spain 3.52 1.89 1.63 0.44 0.46 1.43 -0.69 0.21Sweden 2.96 0.40 2.56 0.25 0.47 1.05 0.78 1.50United Kingdom 2.72 0.60 2.13 0.43 0.74 0.58 0.38 1.56Average (EU12) 2.83 0.78 2.06 0.26 0.51 0.91 0.38 1.15Std. Dev. (EU12) 1.46 0.59 1.08 0.16 0.19 0.86 0.63 0.63Czech Republic 2.74 -0.10 2.84 0.30 0.53 1.41 0.60 1.43Hungary 3.92 0.23 3.67 0.61 0.30 0.36 2.40 3.32Average (EU14) 2.90 0.68 2.23 0.29 0.49 0.91 0.54 1.32Std. Dev.(EU14) 1.38 0.60 1.10 0.17 0.18 0.81 0.79 0.82

Output contribution from Labour productivity contributions from

Employment protection in EU countries 1995-2007 (OECD Indicators)

The index ranges from 0 to 6

Austria

Belgium

Czech Republic

Denmark

Finland

France

GermanyHungary

Ireland

Italy

Netherlands

Sweden

United Kingdom

Spain

Unw

eigh

ted

aver

age

1995

Unweighted average 2007

01

23

45

6E

PLT

inde

x in

200

7

0 2 4 61 3 5EPLT index in 1995

Changes in employment protection in EU countries 1995-2007 (OECD Indicators)

‐4.0 ‐3.5 ‐3.0 ‐2.5 ‐2.0 ‐1.5 ‐1.0 ‐0.5 0.0 0.5 1.0

ItalyGermanyBelgium

NetherlandsSwedenAustria

DenmarkFinlandFrance

United KingdomSpain

Czech RepublicIreland

Hungary

Changes in EPLT Changes in EPLR

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

Country- by-time dummy

Sector-by-time dummy

BASELINE SPECIFICATION- RESULTS

Obs. 1670 1169 1670 1670 1670Groups 140 140 140 140 140

Dependent Variable: TFP (growth rate) 1 2 3 4 5

Explanatory variables EPLT x Temporary Workers Share 0.103*** 0.105*** 0.120*** 0.118***

(0.026) (0.027) (0.017) (0.028)EPLT x Lay Off 0.009 0.003

(0.031) (0.005)ΔEPLT x Temporary Workers Share 0.004** 0.004*

(0.002) (0.002)EPLR x Lay Off -0.022 -0.019

(0.063) (0.063)ΔEPLR x Lay Off 0.011 (0.013)EPLR x Temporary Workers Share -0.040

(0.052)ΔEPLR x Temporary Workers Share -0.002

(0.009)Country -by-year dummies Yes Yes Yes Yes YesSector dummies Yes Yes Yes Yes Yes

Wald chi2 663.17 391.75 659.77 669.61 676.75Prob > chi2 0.00 0.00 0.00 0.00 0.00

 

- The protection for temporary workers ( levels and variations) positively influences the TFP growth rate

- The protection for permanent workers has not a significant impact

Standard errors in parentheses. *** significant at 1% level; ** significant at 5% level; *significant at 10% level

Other estimates: inclusion of PMR and R&D

Obs. 1670 1670 1471 1471Groups 140 140 130 130 Dependent Variable: TFP (growth rate) 1 2 3 4 Explanatory variablesEPLT x Temporary Workers Share 0.094*** 0.114*** 0.122*** 0.141*** (0.027) (0.028) (0.031) (0.019) ΔEPLT x Temporary Workers Share 0.004* 0.004* (0.002) (0.002)EPLR x Temporary Workers Share -0.021 -0.018 -0.032 -0.012 (0.062) (0.063) (0.057) (0.064)ΔEPLR x Temporary Workers Share -0.008 0.002 (0.013) (0.013)PMR -0.024* -0.015 -0.028* -0.018 (0.015) (0.015) (0.016) (0.016)ΔPMR -0.074** -0.088*** (0.029) (0.028)

R&D 0.266***(0.006)

0.249***(0.065)

Country-by-time dummies Yes Yes Yes YesSector dummies Yes Yes Yes Yes Wald chi2 655.32 658.70 405.66 661.99Prob > chi2 0.00 0.00 0.00 0.00

 

•Opposite and significant effects of EPLT (positive) and PMR (negative)•R&D positive significant effects

Standard errors in parentheses. *** significant at 1% level; ** significant at 5% level; *significant at 10% level

THE INTRODUCTION OF THE DISTANCE FROM THE TECHNOLOGICAL FRONTIER

Positive and significant effect: more close is an industry to the industry leader, the higher is its TFP growth rate (divergence)

PANEL A (period 1995-2007) Obs. 1418 1418 1257 1257 Groups 119 119 111 111 Dependent Variable: TFP (growth rate) 1 2 3 4 Explanatory variables

Rel TFP -1.593*** (0.385)

-1.533*** (0.387)

-1.342*** (0.420)

-1.265*** (0.423)

EPLT x Temporary Workers Share 0.076*** 0.076*** 0.106*** 0.106*** (0.028) (0.029) (0.033) (0.034) ΔEPLT x Temporary Workers Share -0.000 -0.000 (0.002) (0.003) EPLR x Lay Off -0.006 -0.003 -0.008 0.003 (0.058) (0.060) (0.059) (0.061) ΔEPLR x Lay Off -0.007 0.000 (0.012) (0.013) PMR -0.091*** -0.085*** -0.104*** -0.095*** (0.018) (0.018) (0.020) (0.020) ΔPMR -0.056* -0.072** (0.030) (0.030)

R&D 0.226*** (0.076)

0.232*** (0.075)

Country-by-Year dummies Yes Yes Yes Yes Sector-by-Year dummies Yes Yes Yes Yes Wald chi2 939.74 934.91 832.10 842.76 Prob > chi2 0.00 0.00 0.00 0.00

 

ROBUSTNESS CHECKS:

If we consider only the market economy results do not change

Obs. 1275 1275 1119 1119Groups 107 107 99 99 Dependent Variable: TFP (growth rate) 1 2 3 4 Explanatory variables

Rel TFP -1.492***(0.398)

-1.451***(0.399)

-1.280***(0.427)

-1.209***(0.431)

EPLT x Temporary Workers Share 0.084** 0.092** 0.126*** 0.128*** (0.034) (0.035) (0.045) (0.047)ΔEPLT x Temporary Workers Share 0.002 -0.0005 (0.003) (0.004) EPLR x Lay Off -0.009 -0.012 -0.016 -0.027 (0.098) (0.102) (0.099) (0.103)

ΔEPLR x Lay Off 0.012(0.020) 0.013

(0.022)PMR -0.096*** -0.088*** -0.106*** -0.097*** (0.019) (0.018) (0.022) (0.022)ΔPMR -0.055* -0.071** (0.032) (0.032)

R&D 0.198***(0.080)

0.201***(0.080)

Country-by-Year dummies Yes Yes Yes Yes Sector-by-Year dummies Yes Yes Yes Yes Wald chi2 889.70 890.44 799.92 817.27Prob > chi2 0.00 0.00 0.00 0.00

 

Conclusions

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.

UnskilledISCO 9

Semi-skilled ISCO 4-8

SkilledISCO 1-3

Quota 1993 0.013 0.189 0.798

Quota 2006 0.028 0.236 0.736Variazione % 1.5% 4.7% -6.2%

Dati: Rilevazione sulle forze di lavoro