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Labour Protection and Productivity in EU Economies: 1995-2005

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  • Mirella Damiani
  • Fabrizio Pompei

Abstract

The present study examines cross-national and sectoral differences in multifactor productivity growth in sixteen European countries from 1995 to 2005. The main aim is to ascertain the role of flexible employment contracts and collective labour relationships in explaining the ample differentials recorded in the European economy. We use the EU KLEMS database for growth accounting and a broad set of indicators of labour regulations, covering two distinct 'areas' of labour regulation: employment laws and collective relations laws. This comprehensive approach allows us to consider arrangements that regulate allocation of labour inputs (fixed-term and part-time contracts, hours worked) and the payoff and decision rights of employees. We find that, since 1995, European countries have not followed similar patterns of growth. A large number of variations between European economies are caused by marked differentials in multifactor productivity and part of this heterogeneity is caused by sectoral diversities. We show that, in labour-intensive sectors such as services, fixed-term contracts, which imply shorter-term jobs and lower employment tenures, may discourage investment in skills and have detrimental effects on multifactor productivity increases. Employment protection reforms which slacken the rules of fixed-term contracts cause potential drawbacks in terms of low productivity gains. We also find that more stringent regulation of these practices, as well as a climate of collective relations, sustain long-term relationships and mitigate these negative effects

Suggested Citation

  • Mirella Damiani & Fabrizio Pompei, 2010. "Labour Protection and Productivity in EU Economies: 1995-2005," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(2), pages 373-411, December.
  • Handle: RePEc:liu:liucej:v:7:y:2010:i:2:p:373-411
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    References listed on IDEAS

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    1. Gordon, Robert J. & Dew-Becker, Ian, 2008. "The Role of Labour Market Changes in the Slowdown of European Productivity Growth," CEPR Discussion Papers 6722, C.E.P.R. Discussion Papers.
    2. Saint-Paul, Gilles, 2002. "Employment protection, international specialization, and innovation," European Economic Review, Elsevier, vol. 46(2), pages 375-395, February.
    3. Guell, Maia, 2000. "Fixed-term contracts and unemployment: an efficiency wage analysis," LSE Research Online Documents on Economics 20181, London School of Economics and Political Science, LSE Library.
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    Citations

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    Cited by:

    1. Mirella Damiani & Jens Hölscher & Fabrizio Pompei, 2011. "Labour market inequalities and the role of institutions," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 8(2), pages 163-173, December.
    2. Francesca Castellani & Giulia Lotti & Nataly Obando, 2020. "Fixed or open-ended? Labor contract and productivity in the Colombian manufacturing sector," Journal of Applied Economics, Taylor & Francis Journals, vol. 23(1), pages 199-223, January.
    3. Lisi, Domenico & Malo, Miguel A., 2017. "The impact of temporary employment on productivity : The importance of sectors' skill intensity," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 50(1), pages 91-112.
    4. Romina Giuliano & Stephan Kampelmann & Benoît Mahy & François Rycx, 2017. "Short Notice, Big Difference? The Effect of Temporary Employment on Firm Competitiveness across Sectors," British Journal of Industrial Relations, London School of Economics, vol. 55(2), pages 421-449, June.
    5. Sebastian NIELEN & Alexander SCHIERSCH, 2016. "Productivity in German manufacturing firms: Does fixed-term employment matter?," International Labour Review, International Labour Organization, vol. 155(4), pages 535-561, December.
    6. Domenico Lisi & Miguel A. Malo, 2017. "The impact of temporary employment on productivity [Auswirkungen befristeter Beschäftigung auf die Produktivität]," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 50(1), pages 91-112, August.
    7. Vittorio Valli, 2014. "Growth and crises in the Italian economy," Chapters, in: Riccardo Bellofiore & Giovanna Vertova (ed.), The Great Recession and the Contradictions of Contemporary Capitalism, chapter 10, pages 165-188, Edward Elgar Publishing.
    8. Addessi, William & Saltari, Enrico & Tilli, Riccardo, 2014. "R&D, innovation activity, and the use of external numerical flexibility," Economic Modelling, Elsevier, vol. 36(C), pages 612-621.
    9. Alberto Bagnai & Christian Alexander Mongeau Ospina, 2018. "Monetary integration vs. real disintegration: single currency and productivity divergence in the euro area," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(4), pages 353-367, October.
    10. Lisi, Domenico & Malo, Miguel A., 2017. "The impact of temporary employment on productivity : The importance of sectors' skill intensity," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 50(1), pages 91-112.
    11. Addessi, William, 2014. "The productivity effect of permanent and temporary labor contracts in the Italian manufacturing sector," Economic Modelling, Elsevier, vol. 36(C), pages 666-672.
    12. William Addessi & Enrico Saltari & Riccardo Tilli, 2011. "R&D and Innovation Activities and the Use of External NumericalFlexibility," Working Papers in Public Economics 150, University of Rome La Sapienza, Department of Economics and Law.

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    More about this item

    Keywords

    productivity; labour regulation; comparative institutions;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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