IDEAS home Printed from https://ideas.repec.org/p/oec/elsaab/134-en.html
   My bibliography  Save this paper

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

Author

Listed:
  • Peter Gal

    (VU University Amsterdam)

  • Alexander Hijzen

    (OECD)

  • Zoltan Wolf

    (United States Census Bureau)

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.

Suggested Citation

  • Peter Gal & Alexander Hijzen & Zoltan Wolf, 2012. "The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence," OECD Social, Employment and Migration Working Papers 134, OECD Publishing.
  • Handle: RePEc:oec:elsaab:134-en
    as

    Download full text from publisher

    File URL: https://doi.org/10.1787/5k913gcn5bf3-en
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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, April.
    2. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
    3. 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, January.
    4. 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," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 884-910, December.
    5. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
    6. 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 2509-2539, October.
    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 of Labor Economics (IZA).
    8. 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.
    9. Sean Dougherty & Verónica C. Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," NBER Working Papers 17693, National Bureau of Economic Research, Inc.
    10. Heinz, Frigyes Ferdinand & Rusinova, Desislava, 2011. "How flexible are real wages in EU countries? A panel investigation," Working Paper Series 1360, European Central Bank.
    11. 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.
    12. 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 115-137, March.
    13. J. P. Gould, 1968. "Adjustment Costs in the Theory of Investment of the Firm," Review of Economic Studies, Oxford University Press, vol. 35(1), pages 47-55.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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 of Labor Economics (IZA).
    2. Ronald Bachmann & Peggy Bechara & Anica Kramer & Sylvi Rzepka, 2015. "Labour market dynamics and worker heterogeneity during the Great Recession – Evidence from Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-29, December.
    3. 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.
    4. Ronald Bachmann & Peggy Bechara & Anica Kramer & Sylvi Rzepka, 2014. "Labour Market Dynamics and Worker Heterogeneity During the Great Recession – Evidence from Europe," Ruhr Economic Papers 0499, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Cristina Fernández & Roberta García & Paloma Lopez-Garcia & Benedicta Marzinotto & Roberta Serafini & Juuso Vanhala & Ladislav Wintr, 2017. "Firm growth in Europe: An overview based on the COMPNET labour module," BCL working papers 107, Central Bank of Luxembourg.
    6. 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.
    7. repec:eee:labeco:v:46:y:2017:i:c:p:64-76 is not listed on IDEAS
    8. Criscuolo, Chiara & Gal, Peter N. & Menon, Carlo, 2014. "The dynamics of employment growth: new evidence from 18 countries," LSE Research Online Documents on Economics 60286, London School of Economics and Political Science, LSE Library.
    9. Hijzen, Alexander & Kambayashi, Ryo & Teruyama, Hiroshi & Genda, Yuji, 2015. "The Japanese labour market during the global financial crisis and the role of non-standard work: A micro perspective," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 260-281.
    10. Paula Garda & Volker Ziemann, 2014. "Economic Policies and Microeconomic Stability: A Literature Review and Some Empirics," OECD Economics Department Working Papers 1115, OECD Publishing.
    11. Bendicta Marzinotto & Ladislacv Wintr, 2019. "Employment protection and firm-level job reallocation: Adjusting for coverage," BCL working papers 131, Central Bank of Luxembourg.
    12. repec:zbw:rwirep:0499 is not listed on IDEAS
    13. Fornaro, Paolo & Luomaranta, Henri, 2017. "Small and Medium Firms, Aggregate Productivity and the Role of Dependencies," ETLA Working Papers 47, The Research Institute of the Finnish Economy.

    More about this item

    Keywords

    employment protection; global financial crisis;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oec:elsaab:134-en. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/eloecfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.