Alexander Hijzen (OECD and IZA) Leopoldo Mondauto (Italia Lavoro and IMT Lucca) Stefano Scarpetta (OECD and IZA)

Transcription

1 The perverse effects of job security provisions on job security: results from a regression discontinuity design / Les effets pervers de la protection de l emploi sur la sécurité des travailleurs en Italie: résultats d une approche de régression par discontinuité Alexander Hijzen (OECD and IZA) Leopoldo Mondauto (Italia Lavoro and IMT Lucca) Stefano Scarpetta (OECD and IZA) Séminaire Fourgeaud, Paris, le 10 décembre 2014

2 Background and motivation Key rationales for employment protection need to protect workers against unfair dismissals provide insurance to workers against the risk of dismissal preserve match-specific human capital and promote its accumulation Major concerns about limited firm flexibility, job reallocation and economic growth Underlies flexicurity approach, which suggests shifting the focus from protecting jobs to protecting workers Several countries with strict rules for permanent contracts adopted a partial approach based on the liberalisation of temporary contracts (incl. Italy pre-crisis) Euro-area debt crisis has highlighted the need for growth-enhancing product and labour market reforms Fornero-Monti labour reform in 2012, Jobs Act in > together these reforms are likely to represent significant turn towards flexicurity approach

3 Previous empirical evidence Aggregate studies that rely on cross-country variation tend to suffer from omitted variable bias and measurement error Bassanini & Duval (2006), Blanchard & Wolfers (2000), Fiori et al. (2012) Many recent studies seek to exploit within-country variation across sectors, regions, size groups or age groups Micco & Pages (2007); Bassanini et al. (2009); Haltiwanger et al. (2013) Autor et al. (US, 2007), Gal et al. (2012), Kugler et al. (Spain, 2010), Centeno and Novo (2012) Studies for Italy have exploited the fact that individual dismissals are much more costly for firms with more than 15 employees Boeri & Jimeno (2005), Schivardi &Torrini (2008), Leonardi and Pica (2013)

4 The contribution of this paper Analyses the effects of employment protection (EP) on worker reallocation, explains this effect and sheds some light on its possible consequences Uses unique newly-established employer-employee dataset for Italy Exploits the role of firm-size exemptions in EP regulation using a regression discontinuity design (RDD) to estimate local effect Also makes attempt to estimate the overall efffect The paper confirms previous findings and shows that these can be entirely explained by the tendency of firms to «circumvent» EP for permanent workers by making greater use of temporary workers There is some indication that this in turn reduces labour productivity

5 Regulation of open-ended contracts (pre 2012) (Statuto dei Lavoratori: 1970/No. 300 & 1990/No. 108) Tutela obbligatoria for 15 firms provides two options in case of unfair dismissal: Reinstatement without compensation Severance pay lower than in large firms Choice rests with employer Tutela reale for 15+ firms provides two options in case of unfair dismissal: Reinstatement and pay foregone wages Severance pay higher and pay foregone wages Choice rests with employee Problem: no stringent definition of fair dismissals (e.g. Ichino et al., 2003) -> The expected cost of economic dismissals is considerably higher in firms with more than 15 employees

6 Regulation of temporary contracts Traditionally, the use of temporary contracts limited to exceptional cases Lack of flexibility motivated a series of reforms to liberalise the use of temporary contracts since the mid 1980s Regulation of temporary contract not subject to discontinuities by firmsize Increased the scope for substituting workers on open-ended contracts by workers on fixed-term contracts

7 Data sources and measurement Unique dataset based on combination of three administrative sources 20% random sample of all firms from Statistical Register of Active Enterprises (ASIA, ISTAT) with information on sales and employment Information on employment by contract and working-time from Italian Social Security Administration (INPS) Information on hires, separations and contract conversions from Compulsory Communications (Ministry of Labour) Focus on firms with at least one employee in 2008 and 2009 (122,632 in total) Allows for more precise definition of the employment-size threshold than has been the case so far Include workers on permanent and temporary contracts and take account of working time

8 Descriptive statistics Average values by firm size, to 5 6 to to total employees worker reallocation 0,56 0,54 0,51 0,5 0,55 incidence of temporary work 0,04 0,08 0,09 0,09 0,05 log labour productivity 11,6 11,7 11,8 11,9 11,6 N % 24% 5% 7%

9 Econometric methodology Regression discontinuity design (RDD) exploits variation in dismissal rules by firm size relies on relatively weak and testable assumptions We make use of the following general model: YY ii = αα 0 + αα 1 DD ii + αα 2 SS ii + αα 2 SS ii 2 + αα 2 SS ii 3 + εε ii y: outcome of interest S: employment size (in deviation from the threshold) D: dummy equaling one if S larger or equal than 15 RDD yields unbiased estimates as long as there is no manipulation of the assignment variable conditional density of assignment variable is continuous for each firm -> treatment is locally randomised

10 I. Firm size distribution is continuous around the threshold (Mac-Crary test)* Assesses whether the distribution of firm size is continuous on average 0.25 McCrary Test Discontinuity estimate (log difference in height): (0.047) Results do not suggest a discontinuity in firm size around the threshold Low power when selection is 0.05 not monotonic but occurs in both directions

11 II. The propensity to grow is not significantly lower below the threshold* Predicted Average Growth Probability Predicted without dummies D15= (.044) D14=.011 (.040) D13=.002 (.038)

12 III. Covariates are locally «balanced» around the threshold* If being above or below the threshold can be considered as good as random, there should be no systematic differences in covariates (e.g. treatment and control groups should be similar) Consider the following covariates: firm age region industry participation in short-time working scheme (CIG). Use RDD to assess discontinuities for each of these variables The results suggests generally no statistical significant difference except in the case of mining and finance

13 I. Employment protection increases worker reallocation Rate of worker reallocation (sum of hires and separations over employment), as a function of employment 5 10 Prediction Confidence interval (95%) Observed Linear prediction based on parametric estimates with third-order polynomial in firm size.

14 II. Employment protection increases the incidence of temporary work Incidence of temporary work as a function of employment Prediction Confidence interval (95%) Observed Linear prediction based on parametric estimates with third-order polynomial in firm size.

15 Sensitivity analysis* Results on worker reallocation and incidence of temporary work are robust to a wide variety of different specifications The employment size window (bandwidth) The way employment size is controlled for (linear, quadratic, cubic) Measurement of employment size (discrete or continuous; treatment of temporary workers and working time) The inclusion of additional controls (industry, region, firm age) Results with respect to labour productivity are less conclusive : either no effect or a negative one Some indication that negative effects are related to use of temporary contracts

16 The aggregate implications of EP on the incidence of temporary work* Local effect possibly larger than aggregate treatment effects because of size-related differences in: Production technology, i.e. importance of firm-specific human capital Adjustment costs, attrition and internal worker reallocation

17 1. The incidence of temporary work does not vary with firmsize beyond threshold* % CI Local polynomial smoothing Incidence of temporary work

18 2. Conditional independence estimates of the incidence of temporary work*

19 Conclusions Employ regression discontinuity design to analyse the impact of employment protection on worker reallocation, the incidence of temporary work and labour productivity (before 2012) We show that regression discontinuity design is valid in the present cases using three alternative test procedures Employment protection increases worker reallocation, the incidence of temporary work and reduces labour productivity Results are generally robust to wide variety of sensitivity tests, except in the case of labour productivity, where the pattern is somewhat mixed Incidence of temporary work accounts for entire difference in churning around the threshold and for a substantial part of the difference in labour productivity EP accounts for about 20% of the incidence of temporary work in Italy

20 Towards a more balanced system of employment protection Reduce the difference between unfair and fair dismissals Both 2012 and 2014 reforms introduce severance pay for economic dismissals and reduce the role of instatement Reduce the difference between temporary and open-ended workers Fornero reform restricted use of temporary contracts but has been revoked by Renzi government Jobs Act envisages tenure-dependent system of severance pay for workers on open-ended contracts

21 Merci!

22 The 2012 reform (not analysed yet)* Changes procedures for the dismissal of a worker with an open-ended contract mandatory conciliation process at the beginning of the dispute introduction of fast-track procedure for labour disputes Modifies sanctions, in particular for 15+ firms judge determines whether to reinstate or severance is paid in case of unfair dismissal judge has some discretion over severity of the sanction in case of unfair dismissal Potential to significantly reduce de facto dismissal costs for 15+ firms depends on how judges exercise their discretion important to monitor the effects of the reform

23 Individual dismissals remain more difficult in Italy than in most other OECD countries* Index from low to high employment protection (0-6), 2013