factors and cast doubts on the correct identification of the effects of EPL. 3 In this paper, we present new evidence on the impact of employment protec- tion legislation on the Italianlabourmarket that does not suffer from the above shortcomings. We exploit the differential change in firing costs for unfair dis- missals in large and small firms after 1990. In that year, in fact, Italy introduced a labourmarket reform which increased employmentprotection for workers em- ployed under permanent contracts in firms with less than 15 employees relative to those in firms with more than 15 employees. This reform allows identifying the effect of firing costs by implementing a differences-in-differences approach, i.e. a comparison of the performance of firms of the same size, before and after the reform, using large firms as the control group.
In this paper, we assess the eﬀects of the Italianlabourmarket reforms which began in 2001 and which led to widespread deployment of temporary work contracts. Using a hitherto unexploited administrative dataset of work histories for the period 2003-2010, we estimate transition probabilities in the states of non-employment and employment and ﬁnd a small positive eﬀect on job creation, imputed to the reforms. Estimates also indicate a large increase in transitions to temporary contracts, which oﬀset the reduction in permanent employment ﬂows, although transition probabilities for men and women explain little heterogeneity. While we do ﬁnd a substitution eﬀect of the reforms on the transition between temporary and permanent contracts, the increased probability of being employed in temporary jobs mostly involved young people and workers in the depressed areas of the south of Italy.
In this paper, we present new evidence on the impact of employment pro- tection legislation exploiting the diﬀerential change in severance pay for unfair dismissals in Italy in large and small firms after 1990, and then ask whether the eﬀects of employmentprotection vary with the strictness of product mar- ket regulations. Krueger and Pischke (1997) have argued, for example, that besides labor market rigidities, restrictions on start up companies or product market regulations may depress employment by reducing the responsiveness of labor demand with respect to labor costs. We formalize a similar idea using a simple matching model with entry and dismissal costs to illustrate the interac- tion between regulations of entry and employmentprotection legislation, and, then, present evidence of the separate and joint eﬀects of regulations in labor and product markets using social security data for Italy.
The empirical analysis of the EPL effects ever since its development has presented several methodological problems not easy to solve. The first problem, so far only partially solved, consists of the difficulty to measure the rigidity grade of an institutional system, owing the presence of many elements that contribute to bring it about. To solve this problem, in order to be able to do international comparisons, it was resorted to the so- called method “ hierarchies of the hierarchies ”, which consists of assign a grade (for instance from 1 to 6) to every country with respect to every element fit to affect the rigidity grade of the system. Averaging the different components, so it is obtained the synthetic index of rigidity. Despite this method has been of great help, it is clear that the numerousness of the elements in the different legislations of the Countries implies an ambiguity to choose what elements are more effective, or even if the same element is effective in the same manner in Countries with different structural characteristics.
growth activities lagging behind in terms of innovation, technology creation and diffusion with respect to manufacturing (e.g. Tether et al., 2001; Triplett and Bosworth, 2001; Tomlinson, 2002). Some service industries, and particularly knowledge-intensive services (e.g. R&D, communication and computer services, consulting), are also recognized to be both important users and main vehicles of technology diffusion across sectors (e.g. OECD, 1997; Tomlinson, 2002; Gallouj and Savona, 2009), as well as providing beneficial effects to the rest of the economy in terms of technological spillovers (Antonelli, 1998). Indeed, nowadays services are increasingly being embodied in manufactured products and the boundaries between the two types of activity have become rather blurred (e.g. Gallouj and Djellal, 2010). The two industries do not carry separate sets of activities but instead their interaction and complementarities contribute to determine the overall performance of the economy. Therefore, various contributions have empirically assessed the increasing interdependence between service and manufacturing industries (e.g. Evangelista, 2000; Miozzo and Soete, 2001; Castellacci, 2008), stressing in particular the role of demand of the latter as one of the major sources of growth in the service industry (Miozzo and Miles, 2003; Guerrieri and Meliciani, 2005).
Some empirical work has also related labourmarket performance to the time series behaviour of quantitative EPL indicators (even though such indicators are a very partial measure of EPL, rankings are, by their nature, essentially cross-sectional and cannot be used in time-series analysis). The results of such exercises are mixed. Lazear (1990) finds evidence of a positive relationship between EPL and unemployment, but Addison and Grosso (1996) find no significant evidence when using a similar but more precise set of data. This is not surprising, since while theory predicts that a given set of EPL provisions should affect the dynamic behaviour (rather than the average level) of employment, the effects of expected and unexpected changes in EPL provisions are generally ambiguous and certainly different from each other. The theoretical prediction of small average effects hinges on the fact that the firm’s current and future actions offset each other along the optimal path. A more stringent employment-protection legislation implies smaller employment reductions in the face of a given labour-demand downturn or wage increase. This does not mean that employment will be higher than it would in the absence of EPL: to the extent that labour-demand downturns or wage hikes are not completely unexpected events, in fact, a rational employer should have hired less during previous upturns, and therefore avoid excessive overmanning during cyclical downturns. This offsetting mechanism can be absent, however, if legislation changes unexpectedly. For example, an unexpected increase in the stringency of EPL should be associated with ceteris paribus higher employment or wages, as firms find it difficult to shed the ex post redundant labour they have hired without expecting employment reductions to be costly or difficult. Symmetrically, an unexpected relaxation of EPL might at least initially reduce employment if firms
There is a growing empirical literature that investigates the impact of EP on job and worker flows. One strand of the literature focuses on specific country case-studies exploiting regulatory reforms or differential treatment of workers or firms. Autor et al. (2007) analyse the impact of the adoption of wrongful-discharge protection norms by state courts in the United States on several firms‟ performance indicators. They exploit differences across US states in the timing of adopting stricter job security provisions and find a negative effect of these provisions on firm entry rates and job flows. Boeri and Jimeno (2005) exploit exemption clauses exonerating small Italian firms from job security provisions: their estimates confirm a significant effect of employmentprotection on job turnover and job destruction, in particular. Schivardi and Torrini (2008), using an Italian matched employer-employee dataset, find similar results as do Kugler and Pica (2008) who assess the effect of a reform in Italy in 1990 that increased firing restrictions for small firms. Along the same lines, Kugler et al. (2010) look at the effects of a reform in Spain in 1997, which lowered dismissal costs for older and younger workers, and find that it was associated with a relative increase in worker flows for these groups. Finally, Venn (2010) explores the impact on hirings of a recent reform of dismissal costs in Turkey that had a different application to small
can trace its roots a long way back. Rather, the legislative decrees implementing Act no. 30/2003 represent a starting point, an essential step that is not sufficient in itself to bring about a complex redefinition and rationalisation of the rules governing the labourmarket. This is not just because the necessary preconditions are now being put in place for a codification of a Statuto dei lavori or Work Statute, laying down a body of fundamental rights for all workers, and not just those in the public administration or in large and medium-sized undertakings, in order to overcome once and for all the dichotomy between those with a particularly high level of protection and those with hardly any safeguards at all, resulting from an ill-conceived and shortsighted distribution of employmentprotection rights. What is even more decisive, in this transition period between the old and the new legal frameworks, is the role of the social partners and, in particular, of the bilateral bodies 11 provided in the new legislation as the forum for the regulation of the labourmarket and for balancing the interests of the two sides. The reform assigns a central role to the social partners, as shown by the 43 references to collective bargaining in the decree law. Collective bargaining is therefore intended as the means for dealing with the various matters covered by the reform.
All these studies neglect the possible role of labourmarket entry channels in affecting migration decisions and overeducation. In Italy, workers find a job mainly through informal channel (family and friends referrals) 2 . While, in principle, social ties can be an effective mechanism to overcome information asymmetries, thus allowing for a better matching between employers and employees, most empirical studies on Italian data have found that the use of the personal channel is associated to lower wages (Pistaferri; 1999; Pellizzari; 2004; SylosLabini, 2004; Meliciani and Radicchia, 2011) and a higher probability of overeducation (Meliciani and Radicchia, 2011). However, these studies have neglected the possible indirect effects of the informal recruitment channel on education-job mismatches through their likely impact on spatial flexibility. The purpose of this paper is to fill this gap by linking the choice of the recruitment channel to migration decisions and to the phenomenon of overeducation. In particular, we estimate probit models with self-selection using ISFOL survey data providing information on labourmarket entry channels, job related migration and a “subjective” measure of overeducation.
developed economies have prompted a major rethinking of the traditional view of services as slow- growth activities lagging behind in terms of innovation, technology creation and diffusion with respect to manufacturing (e.g. Tether et al., 2001; Triplett and Bosworth, 2001; Tomlinson, 2002). Some service industries, and particularly knowledge-intensive services (e.g. R&D, communication and computer services, consulting), are also recognized to be both important users and main vehicles of technology diffusion across sectors (e.g. OECD, 1997; Tomlinson, 2002; Gallouj and Savona, 2009), as well as providing beneficial effects to the rest of the economy in terms of technological spillovers (Antonelli, 1998). Indeed, nowadays services are increasingly being embodied in manufactured products and the boundaries between the two types of activity have become rather blurred (e.g. Gallouj and Djellal, 2010). The two industries do not carry separate sets of activities but instead their interaction and complementarities contribute to determine the overall performance of the economy. Therefore, various contributions have empirically assessed the increasing interdependence between service and manufacturing industries (e.g. Evangelista, 2000; Miozzo and Soete, 2001; Castellacci, 2008), stressing in particular the role of demand of the latter as one of the major sources of growth in the service industry (Miozzo and Miles, 2003; Guerrieri and Meliciani, 2005).
As a final check, we distinguish between long-term dynamics and short-run effects by using an error correction model. The upper part of Table 7 shows the long-run relationships and the lower part the short-run dynamics. Note that two different sets of estimates are performed. The dynamic fixed-effect estimates (DFE) control for the presence of unobserved factors that may lead to spurious correlation, but restrict short-run and long-run coefficients to being equal across all panels. Conversely, the common correlation effects mean group estimator (CCE) also corrects for cross- sectional dependence and time-variant heterogeneity across panels, which plausibly affect our estimates, as confirmed by Pesaran’s cross-sectional dependent test reported in the Appendix (see Table A.5). Indeed, as discussed in section 3, labourmarket reforms affect sectors in the same country differently depending on different sectoral propensities to employ temporary workers or to reallocate jobs. By omitting a specification that controls for this fact, we plausibly have time-variant unobservables with heterogeneous impacts across panel members that cause identification problems for the coefficient of interest. Therefore, CCE allows taking this problem into account in a dynamic panel data framework.
8 For remuneration, strong negative effects caused by lower EPLT are conceivable. Indeed, employmentprotection of temporary workers affects human capital accumulation and productivity and the bargained wage. Especially in environments where training cannot be contracted between firms and workers because of the unverifiable and unenforceable nature of firm-specific human capital investments, low EPLT disincentivate employees to invest in firm-specific human capital by decreasing the probability of the survival of the matching of employees and employers (Arulampalam, Booth and Bryan, 2004). This result is relevant in all contexts where risk-averse employees are liquidity-constrained and cannot obtain insurance against dismissals (Belot, Boone and van Ours, 2007). It means that workers with low protection, as those occupied with fixed terms contracts, receive less training and are less well-paid (Bassanini et al., 2007); and these temporary occupations, as found by Booth, Francesconi and Frank (2002) for the UK, rather than be ‘stepping stones’ to permanent employment in good jobs, reveal to be ‘dead end’ jobs, characterised by poor pay and poor prospects. One related implication is that “the expected wage should persist through the individuals’ careers.” (Booth, Francesconi and Frank, 2002, p. F189 and 192)
Employmentprotection regulation seems to fulfil its stated purpose, namely protecting existing jobs. However, as regards overall labourmarket outcomes, the rationale for pursuing this objective is not fully obvious. Indeed, although it cushions job destruction, employmentprotection also restrains job creation, and overall, its effect on employment is ambiguous. Turning to the literature, most analyses of employmentprotection have been conducted within a framework that does not justify its existence. Exogenous costs of dismissal are introduced into equilibrium models of the labourmarket where the consequences of those costs on employment are derived. As noted by Pissarides (2001): “In such a framework it is hard to see any beneficial effects of employmentprotection, beyond the obvious one of making jobs last longer.” In this regard, studies that have addressed the question of why EPL exists in the first place usually show that to find an economic justification of EPL, it should be considered within a broader framework that also includes a welfare analysis. In addition, EPL interacts with other policy tools, such as unemployment insurance systems and active labourmarket policies, which may also contribute to greater security for those who participate in the labourmarket. Care should thus be devoted to analysing the contribution of EPL with regard to these alternative or complementary policy tools.
These “short-term” effects during the first year are well in line with our con- siderations about the behavioural incentives in section 3. Especially, we find that individuals who take up ME are much longer unemployed, which is not surpris- ing given the possibility to claim UB while being marginally employed. On the other hand, those who move to regular employment directly have less incentive to exhaust their full benefit entitlement. In the second and third year after un- employment entry, the the possibilities to claim are much smaller, because of restricted access to prolonged benefits, making it less desirable to remain un- employed. We believe that the causal relationship between ME and subsequent labourmarket performance is revealed in the medium-term, i.e. once the UB’s incentives have worn out for the majority of the unemployed.
The participation rates of the labour force are quite high - 61.6 per cent in 1998 - while the labour demand continues to be relatively low. This causes a bilateral problem: on the one hand, the undertaking of measures to reduce labour force participation, and on the other hand, the implementation of active labourmarket policies to increase labour demand, particularly in regions with high unemployment or among marginalised groups of unemployed. The measures taken to reduce labour force participation - e.g. early retirement schemes - have had poor effects and in general have increased illegal employment. The experience accumulated indicates that early retirement schemes have not been favourable for reducing labour supply and labour force participation rates, in particular. The lack of permanent analysis and assessment of the efficiency of labourmarket development and labourmarket programmes does not allow us to draw definite conclusions about their effects on unemployment. But it is widely recognised that the weakness of the programmes is their targeting. Improved targeting of the different programmes and the eligibility criteria are therefore expected to raise the efficiency of the programmes. The more precise targeting of the participants in the programmes and the programmes themselves are pre- conditions for improving the results of the labourmarket policies.
Globalization has increased the exposure of open economies to external shocks. The almost instantaneous collapse of international trade in most developed and developing countries in the last quarter of 2008, caused by the international financial crisis, is an instance of how fast the transmission of shocks in the world economy can be. But the world economy has been afflicted by global shocks before. In the 1970s and in the 1980s, when the industrialized countries were hit by oil shocks and by the turbulence in exchange rate markets, following the demise of Bretton Woods, policymakers were vocal about the impact of external shocks on competitiveness. In the 1990s, exchange rates became less volatile and, as a result, exchange rate fluctuations caused only moderate and intermittent concerns. However, the first decade of the 21st century has revived concerns about exchange rate volatility, its effects on global trade and the need for international policy coordination. The rampant US trade deficit and China’s surplus raised doubts about the exchange rate between the dollar and the renminbi. US policymakers have been accusing Chinese authorities of managing the exchange rate policy to keep the renminbi undervalued and boost China’s exports. This type of argument received more attention following the international financial crisis, as governments sought to use the exchange rate to stimulate the economy (e.g., UK and US).
Access to economic activities in the informal economy in Africa has permitted the survival of millions who cannot get formal employment – and has become increasingly important as urban populations have grown, and jobs in the public sector have shrunk. Falling wages and rising costs of living have also swollen the numbers of formal sector workers who engage in informal activities on the side. Informal workers are especially likely to suffer from the consequences of HIV/AIDS, first because there are no health facilities or social protection arrangements at their workplaces; secondly because their activities are rarely based on or lead to financial security, and depend heavily on their labour; and thirdly because the transient and vulnerable nature of the workplace itself – a market stall, a pitch by a traffic light, a roadside shelter to sell snacks, a place on a rubbish dump – means that they are likely to lose their place as soon as they are away from it. A study of female traders in Owino market in Uganda 6 shows how quickly they can lose their livelihoods: when the women’s work is interrupted, either through their own illness or the need to care for someone close to them, spoilage of perishable stock quickly occurs, their small financial reserves are rapidly depleted so that they cannot replace stock, they forfeit their stalls, and their businesses collapse. Furthermore, it was observed in the same study that many of the women ruined in this way turned to the sale or bartering of sexual services in the hope of regaining some kind of financial security, thereby increasing their vulnerability to HIV infection.
The paper considers the last data set Isfol Plus 17 (Participation Labour Unemployment Survey), a sample survey on the Italianlabourmarket supply. The choice of this data-set is connected to its capacity to reconstruct and analyse not only the individual characteristics and the working conditions of the occupied, used in most studies on overeducation (qualification possessed, type of employment, income, family background), but also the path and performance of studies. In fact, for each school attended, you know the final mark obtained any failures, the type of secondary school attended and the frequency of a public or private school. Similarly, in the case of degree you know the type of studies and the different degree (Old or New System, Bologna Process), the mark obtained and whether students graduate on time or with one or more years of delay. Moreover, the recent release of the new wave for the 2014 provides new information by measuring the phenomenon of overeducation and overskill 18 . In particular, the survey includes two different questions to investigate overeducation: 1) “Is your level of education necessary for your current job?”, with a dichotomous classification, positive or negative answer; 2) “what level of education you believe is more suitable for your job?”, with education level classification answer, that allows also a measure of under education. While the measure overskill refers to the question: 3) “How much your ability corresponds with that required by your current job?”, with a scale: my ability is much higher, a little more higher, more or less the same, a little less,
The results of specification 2, presented in the second column of Table 4, include the educational mismatch variables based on an employees’ judgment of the level of education required to carry out the job. As expected, the coefficient on over-education is found to be negative and statistically significant, whereas that on under-education is neither in line with expectations nor statistically significant. The results indicate that over-qualified graduate workers earn, on average, 5.1 per cent less than those with the same qualification level who occupy jobs for which they are adequately qualified. This seems quite low, but one should bear in mind that Dolton and Silles (2001) find that the wage penalty associated with over-educated graduate workers is lower in their first employment destination than in the later stages of their career. Furthermore, one may note that the inclusion of these educational mismatch variables has improved the fit of the model.