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The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence

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  • Peter Gal
  • Alexander Hijzen
  • Zoltan Wolf

Abstract

This paper investigates the role of policies and institutions for aggregate labour market dynamics during the global financial crisis using firm-level data. The use of firm-level data is important if firms are heterogeneous in their labour input adjustment technologies. In this case, cross-country differences in aggregate labour market dynamics may not just stem from cross-country differences in average labour input technologies - here assumed to be largely due to differences in institutional settings -, but also from differences in the distribution of shocks across firms within countries and the composition of firms across countries. The contribution of this paper is threefold. First, the paper provides comparable estimates of the labour input adjustment behaviour of firms in response to output shocks across countries, industries and firm-size groups. Second, it makes use of decomposition methods to get a first indication of the importance of cross-country differences in adjustment technologies, the distribution of shocks across firms and the composition of firms across countries. We find that differences in the adjustment behaviour of firms account for about 40% of the cross-country variation in aggregate employment growth during the global financial crisis. We interpret this as prima facie evidence that differences in institutional settings accounted for a substantial part of the variation in aggregate employment growth during the crisis. Third, we find that employment-protection provisions with respect to regular workers reduce the output elasticity of employment, but increase the output elasticity of earnings per worker. Thus, employment protection tends to shift the burden of adjustment from the extensive to the intensive margin. However, the quantitative impact of employment protection for explaining the variation in aggregate labour dynamics during the global financial crisis is relatively small. Cet article étudie le rôle des politiques et des institutions sur la dynamique générale du marché du travail au cours de la crise financière mondiale au moyen de données au niveau des entreprises. Le recours aux données au niveau des entreprises devient nécessaire si les entreprises sont hétérogènes en termes de techniques d’ajustement du facteur travail. Dans ce cas, les différences entre pays en matière de dynamique générale du marché du travail peuvent non seulement provenir de différences des techniques de l’ajustement moyen du facteur travail entre pays - supposées ici être dues en grande partie à des différences d’environnement institutionnel -, mais également d’écarts au niveau de la répartition des chocs entre les entreprises au sein des pays et de la composition des entreprises entre pays. La contribution de cet article est triple. Tout d'abord, cet article fournit des estimations comparables du comportement d'ajustement du facteur travail des entreprises en réponse à des chocs de production entre pays, branches d’activité et taille d'entreprise. Deuxièmement, il fait appel à des méthodes de décomposition pour obtenir une première indication de l'importance des différences entre pays en matière d’ajustement, de répartition des chocs entre les entreprises et de composition des entreprises entre pays. Nous constatons que les différences dans le comportement d'ajustement des entreprises représentent environ 40% de la variation entre pays de la croissance globale de l'emploi pendant la crise financière mondiale. Nous interprétons cela comme une preuve prima facie que les différences d’environnement institutionnel représentent une part substantielle de la variation de la croissance globale de l'emploi pendant la crise. Troisièmement, nous constatons que les dispositions en matière de protection de l’emploi des travailleurs réguliers réduisent l’élasticité de l’emploi à la production, mais augmentent l'élasticité des gains par travailleurs à la production. La protection d’emploi incite les entreprises à ajuster moins à la marge extensive mais davantage à la marge intensive. Pourtant l'impact quantitatif de la protection de l'emploi est limité pour expliquer la variation globale de la dynamique du travail au cours de la crise financière mondiale.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 134.

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Date of creation: 25 Oct 2012
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Handle: RePEc:oec:elsaab:134-en

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Keywords: employment protection; global financial crisis;

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  1. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward nominal and real wage rigidity: survey evidence from European firms," Working Papers 110, Bank of Greece.
  2. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March.
  3. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
  4. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2010. "The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries," Economic Policy, CEPR & CES & MSH, vol. 25, pages 117-163, 01.
  5. Andrea Bassanini & Romain Duval, 2009. "Unemployment, institutions, and reform complementarities: re-assessing the aggregate evidence for OECD countries," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 40-59, Spring.
  6. Belot, Michèle & van Ours, Jan C, 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," CEPR Discussion Papers 2492, C.E.P.R. Discussion Papers.
  7. Hijzen, Alexander & Mondauto, Leopoldo & Scarpetta, Stefano, 2013. "The Perverse Effects of Job-Security Provisions on Job Security in Italy: Results from a Regression Discontinuity Design," IZA Discussion Papers 7594, Institute for the Study of Labor (IZA).
  8. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR & CES & MSH, vol. 24, pages 349-402, 04.
  9. Heinz, Frigyes Ferdinand & Rusinova, Desislava, 2011. "How flexible are real wages in EU countries? A panel investigation," Working Paper Series 1360, European Central Bank.
  10. Giuseppe Moscarini & Fabien Postel-Vinay, 2012. "The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment," American Economic Review, American Economic Association, vol. 102(6), pages 2509-39, October.
  11. Sean Dougherty & Verónica Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," OECD Economics Department Working Papers 917, OECD Publishing.
  12. Andrea Bassanini & Andrea Garnero & Pascal Marianna & Sébastien Martin, 2010. "Institutional Determinants of Worker Flows: A Cross-Country/Cross-Industry Approach," OECD Social, Employment and Migration Working Papers 107, OECD Publishing.
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Cited by:
  1. Hijzen, Alexander & Mondauto, Leopoldo & Scarpetta, Stefano, 2013. "The Perverse Effects of Job-Security Provisions on Job Security in Italy: Results from a Regression Discontinuity Design," IZA Discussion Papers 7594, Institute for the Study of Labor (IZA).
  2. Joachim Wagner & Yama Temouri, 2013. "Do outliers and unobserved heterogeneity explain the exporter productivity premium? Evidence from France, Germany and the United Kingdom," Economics Bulletin, AccessEcon, vol. 33(3), pages 1931-1940.
  3. Vivian Carstensen, 2013. "The German Labor Market Miracle Revisited: Risk Elimination in Working Time Accounts," Eurasian Journal of Social Sciences, Eurasian Publications, vol. 1(1), pages 19-38.

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