Wage effects of non-wage labour costs

Cervini-Plá, María; Ramos, Xavier; Silva, José I.

doi:10.1016/j.euroecorev.2014.09.005

Cited by 11 publications

(10 citation statements)

References 34 publications

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“…A neighbouring literature provides mixed results on the impact of EPL on wages and labour costs: Bird and Knopf (), Martins (), Cervini Plá et al . (), Leonardi and Pica () find a negative relationship; Van der Wiel () finds a positive relationship while Autor et al . () finds mainly insignificant results.…”

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confidence: 93%

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

Cingano

Leonardi

Messina

et al. 2015

Econ J

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This article estimates the causal impact of dismissal costs on capital deepening and productivity, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for larger firms. We show that the rise in firing costs induced an increase in the capital-labour ratio and a decline in total factor productivity in small firms relative to larger firms. Our results indicate that capital deepening was more pronounced at the low-end of the capital distribution -where the reform hit arguably harder -and among firms endowed with a larger amount of liquid resources. We also find that stricter Employment Protection Legislation (EPL) raised the share of high-tenure workers, which suggests a complementarity between firm-specific human capital and physical capital in moderate EPL environments.If dismissal protections cannot be undone by Coasean bargaining, theory predicts that employment protection legislation (EPL) acts as a tax on both hiring and firing, reducing accessions and separations with an ambiguous final effect on the employment level. The reason is that firing costs provide incentives to retain workers whose wage exceeds their productivity during bad times and not to hire workers whose wage lies below their productivity during good times (Bentolila and Bertola, 1990). While there is a large body of evidence confirming this theoretical prediction (see the recent review by Skedinger, 2011), less is known about the impact of dismissal costs on other firm level outcomes, as capital deepening and productivity.The theoretical predictions of the impact of EPL on capital deepening are in fact ambiguous. In competitive models with no financial and labour market frictions, an increase in EPL is expected to raise the cost of labour and induce capital-labour substitution, distorting production choices and reducing allocative efficiency (Autor et al., 2007); in the long-run firms can change their production techniques and adopt more capital-intensive technologies (Caballero and Hammour, 1998;Alesina and Zeira, 2006;Koeniger and Leonardi, 2007). On the contrary, in models with labour market frictions and wage bargaining, stricter EPL exacerbates the 'hold-up' problem typical of investment decisions and reduces the stock of capital per worker (Bentolila and Dolado, 1994;Garibaldi and Violante, 2005). However, the relationship between EPL and capital intensity can turn positive if physical capital and firm-specific human

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confidence: 93%

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

Cingano

Leonardi

Messina

et al. 2015

Econ J

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“…They uncover a significant reduction of wages in smaller firms, and find that it is concentrated on newly-hired workers as opposed to incumbent workers. Cervini-Plá et al [2014] analyze a reduction of firing costs and payroll taxes targeted at temporary workers in Spain in 1997. They find that the reform increased the wages of workers, especially those of new entrants.…”

Section: Discussionmentioning

confidence: 99%

Labor-market frictions, incomplete insurance and severance payments

Lalé

2019

Review of Economic Dynamics

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We analyze the effects of government-mandated severance payments in a rich life-cycle model with search-matching frictions in the labor market, risk-averse agents and imperfect insurance against idiosyncratic shocks. Our model emphasizes a tension between worker-firm bargains and consumption smoothing: entry wages are tilted downwards as a response to future severance payments, which runs counter to having a smooth consumption path. Consequently, we find that severance payments produce mostly negative welfare effects. We use the model to characterize the determinants of these welfare losses. We show that even when optimized jointly with unemployment insurance benefits, large government-mandated severance payments should be avoided.

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“…Cervini-Plá, Ramos, and Silva (2014) found an increasingly large wage impact of payroll taxes as workers moved up the wage distribution, but for a much larger reduction in the payroll tax.…”

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confidence: 98%

“…The results could well be different from an across the board change in payroll taxes such as the one we examined in this paper. Cervini-Plá, Ramos, and Silva (2014) use data from Spain and a policy that introduced lower payroll taxes contribution rates and lower firing costs for the unemployed aged less than 30 and over 45 years who find themselves in a new permanent job. They exploit variations in payroll tax rates and firing costs between age groups and across time.…”

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confidence: 99%