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Employment protection legislation and job stability: an European cross country analysis

  • Cazes, Sandrine
  • Tonin, Mirco

This paper tries to shed some light on the actual changes that occurred in the labour markets dynamics of the European Union 253 (EU-25) over the last decade using job tenure4 data. It then investigates the potential role of employment protection legislation (EPL)5 changes in explaining differences in the dynamics of job stability across countries but also across age groups in light of the dual-track reform strategy introduced in Europe during the same period: in most European countries, reforms were made typically at the margin (for new hires), while EPL for the incumbent workers remained unchanged. Thus, if the legislation does not apply uniformly to all workers, the effects of EPL reforms are expected to be disproportionately felt by new entrants, such as the young, women, and possibly immigrants. The paper opens with a descriptive analysis of job stability measured through job tenure in the EU-25, and its evolution over the last years. The level and structure by age of this indicator is our main empirical material. Data used comes from Labour Force Surveys (EUROSTAT) up to 2006. The analysis shows no generalized decrease in job tenure but a trend towards shorter tenure of young workers (15-24) in most European countries. In a second step, the paper examines the possible explanations behind this trend, focusing on employment protection legislation. An econometric analysis is conducted to test the existence of a link between employment protection and job stability. In particular, we look at the impact of employment protection on average tenure and on the incidence of temporary employment. Finally, some policy recommendations are provided.

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0902.

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Date of creation: 01 Feb 2009
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Handle: RePEc:stn:sotoec:0902
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  1. Juan José Dolado & Carlos García-Serrano & Juan F. Jimeno, . "Drawing Lessons from the Boom of Temporary Jobs in Spain," Working Papers 2001-11, FEDEA.
  2. Giuseppe BERTOLA & Tito BOERI & Sandrine CAZES, 2000. "Employment protection in industrialized countries: The case for new indicators," International Labour Review, International Labour Organization, vol. 139(1), pages 57-72, 03.
  3. Peter AUER & Sandrine CAZES, 2000. "The resilience of the long-term employment relationship: Evidence from the industrialized countries," International Labour Review, International Labour Organization, vol. 139(4), pages 379-408, December.
  4. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  5. Bertola, Giuseppe, 1992. "Labor Turnover Costs and Average Labor Demand," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 389-411, October.
  6. Cahuc, Pierre & Postel-Vinay, Fabien, 2001. "Temporary Jobs, Employment Protection and Labor Market Performance," IZA Discussion Papers 260, Institute for the Study of Labor (IZA).
  7. Tito Boeri & Pietro Garibaldi, 2007. "Two Tier Reforms of Employment Protection: a Honeymoon Effect?," Economic Journal, Royal Economic Society, vol. 117(521), pages 357-385, 06.
  8. Lawrence M. Kahn, 2006. "The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence," Working Papers 886, Princeton University, Department of Economics, Industrial Relations Section..
  9. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-89, September.
  10. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
  11. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc.
  12. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  13. Boeri, Tito, 1996. "Is Job Turnover Countercyclical?," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 603-25, October.
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