The Effect of Employment Protection on Worker Effort: Absenteeism during and after Probation

Abstract

Employment protection systems are widely believed to generate distortions in firms' hiring and firing decisions. However, much less is known about the impact of these regulations on workers' behavior. In this paper we provide evidence on the latter question using data from a large Italian bank. Our analysis is based on weekly observations for 545 men and 313 females hired as white‐collar workers between January 1993 and February 1995. These workers begin to be protected against firing only after the 12th week of tenure, and we observe them for one year. We show that—particularly for men—the number of days of absence per week increases significantly once employment protection is granted at the end of probation. This suggests that the provision of employment protection causes the increase in absenteeism. Alternative explanations based on career concerns or on learning about social norms would predict a smooth relationship between absenteeism and tenure instead of the observed discrete jump. This consequence of employment protection seems to have been neglected in European policy debates so far. (JEL: J2, D2, D8, M5)

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“…This could affect productivity in accordance with the standard models. Second, the reform could have caused a behavioral change in workers, changing their level of effort in line with the observations by Ichino & Riphahn (2005) and Shapiro & Stiglitz (1984). Third, a change in the cost of adjusting labor might change the choice of capital intensity which directly affects labor productivity.…”

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Employment Protection and Misallocation of Resources Across Plants: International Evidence

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Team production benefits from a permanent fear of exclusion

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