Better protected, better paid: Evidence on how employment protection affects wages

Wiel, Karen van der

doi:10.1016/j.labeco.2009.09.008

Cited by 34 publications

(11 citation statements)

References 21 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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Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Cingano

Leonardi

Messina

et al. 2015

Econ J

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“…We provide complementary evidence to Kugler and Pica (2008), who use the same reform episode to estimate, as most of the empirical literature on EPL, the effect of firing costs on worker and job flows. 1 We focus, instead, on the adjustment through the wage rate, a margin on which the available evidence is scant and provides ambiguous results: Autor et al (2006) find no significant effect of wrongful-discharge laws on wage levels in the US; Cervini Pl a et al (2010) show that the 1997 Spanish reform that lowered both firing costs and payroll taxes had a positive effect on wages; Van der Wiel (2010) finds opposite results for the Netherlands using a reform that affected differently high and low-tenured workers. The contribution of this study is not only to quantify the causal effect of EPL on wages but also and foremost to highlight the heterogeneity of the effect and to relate it to the role of the relative bargaining power of workers and firms, thus drawing a lesson which goes arguably beyond the Italian experience.…”

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Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation

Leonardi

Pica

2013

The Economic Journal

118

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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. www.econstor.eu 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 organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. 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. Terms of use: Documents in 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. A revised version may be available directly from the author. Theory predicts that the wage effects of government-mandated severance payments depend on workers' and firms' relative bargaining power. This paper estimates the effect of employment protection legislation (EPL) on workers' individual wages in a quasi-experimental setting, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees and left firing costs unchanged for bigger firms. Accounting for the endogeneity of the treatment status, we find that high-bargaining power workers (stayers, white collar and workers above 45) are almost left unaffected by the increase in EPL, while low-bargaining power workers (movers, blue collar and young workers) suffer a drop both in the wage level and its growth rate.JEL Classification: E24, J3, J65

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“…See Brown and Sessions () and Hevenstone () for OECD countries; Jimeno and Toharia (), De La Rica (), and Amuedo‐Dorantes and Serrano‐Padial () for Spain; Hagen () and Jahn () for Germany; Graaf‐Zijl () and Van der Wiel () for the Netherlands; Blanchard and Landier () for France; Booth et al . () for the UK; Picchio (), Tanda and Rossetti (), and Elia () for Italy.…”

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The Implications of Temporary Jobs on the Distribution of Wages in Italy: An Unconditional IVQTE Approach

Bosio

2013

Labour

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Using Italian data, this paper investigates the wage implications of temporary jobs across the whole pay profile using unconditional quantile regression (UQR) models. Results clearly indicate that the wage penalty associated to temporary jobs is significantly larger at the bottom of wage profile and is almost absent for high-wage jobs. This is in line with the sticky floors hypothesis, supporting the idea that the wage gap for temporary employees depends on their position in the wage distribution for low-paid jobs. To recover a causal interpretation, I employ an instrumental variable (IV) strategy. I adopt the unconditional instrumental variable quantile treatment effects (IVQTE) estimator proposed by Frolich and Melly, which corrects for endogenous selection in temporary contracts. The IVQTE estimates yield similar results to standard UQR, even if the wage penalty is larger in size at the bottom of the wage distribution and disappears at the top quantiles. This evidence highlights that policies aimed at increasing flexibility may reinforce the two-tier nature of the Italian labour market and the relative wage inequality.I would like to thank Marco Leonardi, Blaise Melly, Matteo Picchio, Massimiliano Bratti, Fabio Parisi, and two anonymous referees for useful comments and suggestions.

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Better protected, better paid: Evidence on how employment protection affects wages

Cited by 34 publications

References 21 publications

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

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

Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation

The Implications of Temporary Jobs on the Distribution of Wages in Italy: An Unconditional IVQTE Approach

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