Labour Flexibility and Wages: Lessons from Spain

Bentolila, Samuel; Dolado, Juan J.

doi:10.2307/1344458

Cited by 343 publications

(340 citation statements)

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“…But there is no supportive cross-country evidence permitting generalization of this result. These and other findings (Bentolila and Dolado, 1994), however, do suggest that firm-level panel estimation may offer a useful additional check on the impact of different employment protection regimes.…”

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confidence: 57%

The economics of employment protection

2003

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in The Economics of Employment ProtectionJohn T. Addison Paulino Teixeira The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. ABSTRACT The Economics of Employment ProtectionEmpirical investigation of the labor market consequences of employment protection has mushroomed since Lazear's (1990) pioneering study. Having sketched the theoretical background, we chart the course of the modern empirical literature. We focus mainly on dismissals protection, distinguishing between the themes of employment and unemployment development and labor market dynamics proper. Our discussion of employment and unemployment largely deals with the effect of employment protection on levels of these outcome indicators. We distinguish between overall and compositional effects (e.g., by demographic group and type of contract), between developing and industrialized nations, and identify some key control variables. Our discussion of labor market dynamics focuses on the speed of adjustment issue and on gross flows. It also formalizes the link between analyses of levels and changes in variables. At all times potential offsets to the adverse effects of employment protection receive consideration.

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confidence: 57%

The economics of employment protection

2003

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“…The interaction term D S jt ×P ost between the small firm dummy and the post-reform dummy is included to capture the effect of the EPL reform on the variable of interest. 10 The matrix X jt contains a polynomial of third degree in firm size. Notice that since identification comes from firm size as measured by the number of employees, we cannot use dependent variables in per-worker terms.…”

Section: Identification Strategy and Regression Modelmentioning

confidence: 99%

“…The mean of the dependent variables is estimated 10 Other papers have exploited the discontinuities in firing costs regimes that apply to firms of different sizes within countries. Boeri and Jimeno (2005) assess the effect of EPL on lay-off probabilities by comparing firms below and above 15 employees in Italy.…”

Section: Identification Strategy and Regression Modelmentioning

confidence: 99%

“…In models with labor market frictions and wage bargaining, stricter EPL strengthens the bargaining power of insider workers and exacerbates the "hold-up" problem typical of investment decisions, reducing the stock of capital per worker (Bentolila and Dolado, 1994;Garibaldi and Violante, 2005; Janiak and Wasmer, 2013). Recently, Janiak and Wasmer (2013) show that also in matching models with intrafirm bargainingà la Zwiebel (1996a, 1996b), the relationship between EPL and capital intensity is monotonic and usually decreasing.…”

Section: Introductionmentioning

confidence: 99%

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Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

et al. 2014

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Employment protection may affect both productivity and capital investment because higher adjustments costs hamper allocative efficiency and may therefore affect both the optimal capitallabor input mix and total factor productivity. To estimate the impact of dismissal costs on capital deepening and productivity we exploit a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for bigger firms. We provide evidence that the increase in firing costs induced capital deepening and a decline in total factor productivity in small firms relative to larger firms after the reform. We also find that capital deepening is more pronounced at the low-end of the capital distribution -where the reform arguably hit harderand among firms endowed with a larger amount of liquid resources, that have more room to react thanks to an easier access to the credit market. Our results also indicate that the EPL reform reduced the probability to access the credit market, possbily because stricter EPL reduces both the value of the firm and the amount of internal resources that the firm can pledge as collateral against lenders.

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“…The strategy to increase the flexibility of the labor market has been implemented at the margin (dual track reforms), without affecting those hired on "regular" contracts, who are still protected by high job security (Bentolila and Dolado, 1994; Saint-Paul, 1996; Cabrales and Hopenhayn, 1997;Tealdi, 2011). 5 Therefore, the protection of the traditional permanent contract has often not changed significantly following the introduction of temporary contracts (OECD, 2008).…”

Section: Introductionmentioning

confidence: 99%

Uncertainty and the Politics of Employment Protection

Vindigni

Scotti

Tealdi

2015

Journal of Labor Economics

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This paper investigates the social preferences over labor market flexibility, in a general equilibrium model of dynamic labor demand. We demonstrate that how the economy responds to productivity shocks depends on the power of labor to extract rents and on the status quo level of the firing cost. In particular, we show that when the firing cost is initially relatively low, a transition to a rigid labor market is favored by all the employed workers with idiosyncratic productivity below some threshold value. Conversely, when the status quo level of the firing cost is relatively high, the preservation of a rigid labor market is favored by the employed with intermediate productivity, whereas all other workers favor more flexibility. A more volatile environment, and a lower rate of productivity growth, i.e., "bad times," increase the political support for more labor market rigidity only where labor appropriates of relatively large rents. The coming of better economic conditions not necessarily favors the demise of high firing costs in rigid high-rents economies, because "good times" cut down the support for flexibility among the least productive employed workers. The model described provides some new insights on the comparative dynamics of labor market institutions in the U.S. and in Europe over the last few decades, shedding some new light both on the reasons for the original build-up of "Eurosclerosis," and for its relative persistence until the present day.Keywords: employment protection, job creation and destruction, firing cost, idiosyncratic productivity, volatility, growth, political economy, voting, rents, status quo, path dependency, institutional divergence.JEL Classification: D71, D72, E24, J41, J63, J65.¦ We are especially grateful to Gilles Saint-Paul, Bjoern Bruegemann and two anonymous referees whose comments allowed us to improve significantly the quality of the paper, and the editor Christopher Taber for many valuable suggestions and insights. We also thank Daron Acemoglu, David Autor, Roland Bénabou, Olivier Blanchard, Tito Boeri, Ricardo Caballero, Robert Shimer, Iván Werning, for helpful comments. The usual disclaimer applies.X IMT Lucca and Collegio Carlo Alberto. Y LPMA, Université Paris 7 Diderot. § IMT Lucca.

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Labour Flexibility and Wages: Lessons from Spain

Cited by 343 publications

References 16 publications

The economics of employment protection

The economics of employment protection

Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Uncertainty and the Politics of Employment Protection

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