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Employment Adjustment in a "Sclerotic" Labour Market: Comparing Portugal with Germany, Spain, and the United Kingdom

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Author Info

  • John T. Addison

    ()
    (University of South Carolina)

  • Paulino Teixeira

    ()
    (Universidade de Coimbra)

Abstract

Summary measures of the overall strictness of a country's employment protection laws have proven popular constructs in cross-country studies of the covariation of labour market institutions and macroeconomic outcomes. Portugal occupies an unenviable position in the rankings, and is often alleged to be a near exemplar of a sclerotic labour market. We critique this reputation via an analysis of the process of labour adjustment in Portugal, benchmarket to the experiences of Germany, Spain, and the UK. Our one-step error-correction model indicates that Portugal palpably displays a higher speed of employment adjustment to deviations from the long-run equilibrium than its reputation as the exemplar of over-ambitious job protection legislation would imply. In conjunction whit its low employment-output elasticity, there results a fairly rapid convergence to the long-run path. Portugal is in no sense an outlier in the employment adjustment process vis-a-vis the U.K. and Germany. Our simulation exercise does "confirm" one inference from conventional ranking exercises, namely, the smooth labour adjustment mechanism obtaining in the U.K., where the maximum impact of an exogenous change in output is reached very quickly. The German case is most notable for an apparent deterioration in the process of adjustment in recent years. Frankly, Spain represents something of a challenge to the theoretical model in terms of the underlying relationship between the relevant variables and in the sensitivity of the key estimates to model specification. Accordingly, further work is required before we can safely comment on that country's long-run pattern of labour adjustments.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 221 (2001)
Issue (Month): 4 (July)
Pages: 353-370

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Handle: RePEc:jns:jbstat:v:221:y:2001:i:4:p:353-370

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Related research

Keywords: Employment adjustment; employment protection; labour demand; error-correction model;

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Cited by:
  1. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2014. "The Own-Wage Elasticity of Labor Demand: A Meta-Regression Analysis," IZA Discussion Papers 7958, Institute for the Study of Labor (IZA).
  2. Jens Suedekum, 2003. "Increasing Returns and Spatial Unemployment Disparities," ERSA conference papers ersa03p44, European Regional Science Association.

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