Balancing flexibility & security

Transcription

1 Balancing flexibility & security (I) Experiences from CEE (II) What do we know about LM regulations? Sandrine CAZES ILO Turin, 27 October 2010

2 Today s topics Flexibility & security: concepts and policy Assessing Markets flexibility Role of Market Policies and Institutions Challenges for moving forward

3 Some thoughts on flexibility and security Flexibility is the degree to which employment (or working time) or wages adjust to economic changes: external/internal; numerical, functional, wage flexibility Security also a multidimensional concept: job, employment, income, objective/subjective security Balance (Flexicurity?) is the combination of both, i.e. a socially acceptable balance between the needs of adaptable firms and need of security, notably for weaker groups in and out the labour market The mix of strategies has to be flexible

4 Balancing flexibility & security (I) Experiences from CEE

5 (I) Assessing Markets flexibility Trend in employment relations in CEE countries Since 2000, trend towards more flexible form of employment, in particular temporary employment. By contrast, part-time employment remains limited below 10% - due to its unpopularity among employers and workers. Major differences across countries in the % of self employment However, main evidence of LM flexibilization has been an increase in informal employment during the transition period. Incidence of flexible forms of employment particularly high among «vulnerable» groups. => Flexibilization of E relations + deepening of LM segmentation 5

6 Incidence of part-time employment and temporary contracts Bulgaria Croatia Hungary Lithvania Poland EU15 EU25 Part-time employment Temporary contracts

7 (I) Assessing Markets flexibility- dynamic analysis in CEE countries turnover has declined since 2000, indicating a certain stabilization of LM after the period of extensive enterprise restructuring in the 1990s. Tenure data also confirmed this stabilization, as well as deepening LM segmentation (ratio of short tenure/long tenure) turnover counter-cyclical (in particular, voluntary quits do not increase with eco upswings). Low mobility can be explained by perceived insecurity due to weak LM institutions. Inefficient labour reallocation may have a negative effect on labour productivity for the whole economy => Higher flexibility needs to be combined with certain Employment security

8 (I) Market institutions and policies in CEE countries Liberalization of EPL in CEE countries in hope of boosting employment and new recruitments EPL in new EU countries now more liberal than the average for EU-15, but its enforcement needs improvement. Moreover, since coverage of workers by Collective Agreements is low, workers enjoy low protection at workplace.

9 Portugal Slovenia Italy Spain France Germany Norway Sweden Estonia Belgium Slovakia Austria Japan Netherlands Finland Czech Republic Poland Hungary Denmark Switzerland Australia Ireland Canada U.K. New Zealand U.S. 4 Employment Protection Legislation Index Range: 1 (low) to 6 (high)

10 (I) Market institutions & policies in CEE countries Unemployment insurance became less generous over the 90s (level of benefit duration, tightening of eligibility conditions); ALMPs: a drop in the ocean (expenditures below 1% of GDP in most countries) In general spending on UB and ALMP significantly lower than in EU-15 countries Despite recent improvement & still high labour taxation, E and income security outside workplace through LMP is still much below the level of EU-15

11 (I) Market institutions and policies in CEE countries Membership in TUs has declined Czech Rep. 43% 30% Estonia 36% 15% Hungary 60% 20% Poland 34% 15% Slovakia 62% 40% Slovenia 60% 41% Collective Bargaining coverage is higher than union density, but declined as well Weak bargaining power due to low level of coordination

12 UB coverage Unemployment coverage Vs EPL Denmark Belgium Ireland UK Germany Netherlands France Spain Italy Portugal Greece EPL

13 share of unemployed receiving benefits, 2002 Unemployment coverage vs EPL EST LTV 30 HUN CZ 20 POL SLK BUL HR 10 LITH EPL strictness R 2 = 0.032

14 (I) Wrap up Liberalization of EPL without any visible effects on LM performances Weak Market institutions (in particular Social Dialogue) In order to increase mobility of workers, transitions have to be protected Need to balance stability & mobility; flexibility and security

15 Balancing flexibility & security (II) What do we know about the role of LM regulations?

16 Today s labour economics is mostly concerned with LM regulations and their impact on economic & LM outcomes Dominance of market «metaphore» > Institutions cost rather than benefits The main institutions researched are: Unions and wage setting institutions, including minimum wages, Hiring and firing rules (EPL mainly but contracts in general), Unemployment Benefits and Active labour market policies

17 (II) Market Regulations are one of the most controversial and divisive topics in labour market policy For many, regulations constitute a warranty of fair employment conditions (help) Others point to regulations as an obstacle to (formal) employment growth (hinder).

18 (II) Rationale and Role of market regulations Memo: Regulations are put in place with the main objective to improve workers welfare. But regulations can lead to adverse outcomes, even for those same workers that regulations want to protect.

19 (II)The debate on EPL Review theoretical & empirical research focusing on the effects of labour legislation (EPL) > Are the debates settled? > Is measurement an issue? > Benefits > Effects for specific groups > Importance of interactions

20 (II) EPL, as of the most controversial topic Increasing Complexity of the Institutional Environment Frequent Market Reforms Over the last decades, both indicators & studies trying to explain differences in Economic / Market performance through institutional variables have burgeoned Yet debate still unsettled

21 (II) What theory tells us EPL generates a number of effects on labour costs, employment and productivity, some favourable and some unfavourable. The net impact seems likely to vary between size of firms, type of activity and according to the economic conditions If it is difficult to fire workers, there will be less job destruction in recessions.. So theoretical models suggest rather clearly that stringent EPL reduces turnover but ambiguous effects on employment for existing firms

22 (II) What evidence shows Macro/over time analysis (OECD Job study, EO99, Nickell 97, Bertola 99, IMF WEO, 2003, etc.): ambiguous results. JS has little or no effect on overall unemployment, but may affect its demographic composition; EPL may have a positive effect on the employment rate for prime age men; stricter EPL is associated with higher rates of self employment and with lower turnover in the LM Micro-level studies (Heckman &Pagès, 2003, Micco & Pagès, 2006, Kugler 2004) also not necessarily less ambiguous than cross-section of countries time series literature

23 (II) Is Measurement the issue? Part of the problem may be due to the lack of satisfactory indicators, despite the innovative & rich work to measure hiring and firing rules Comparable datasets remain scarce, developed by Organisations: OECD (1999; 2004); World Bank (Doing Business Reports); Focus on dismissals costs

24 (II) Assessing EPL Neglect enforcement procedures Arbitrary choices for weighting Omit exemptions to the application of EPL to small enterprises Quest for a time series Cross section issues

25 (II) Partly, but not only Benefits of regulation? Using a cost benefit analysis Assessing the interactions among features. LM regulation as a collective choice along trade-offs/ Avoid a fragmented approach Assessing the interaction of institutions and economy Other forms of flexibility/ security provided by Collective Bargaining

26 Wrap up (II) A single institutional setting on its own does not determine the issue of job flexibility and security Most of the debates on the impact of LM regulations are NOT settled Measurement Issues of LM regulations are critical ones Need to have a comprehensive approach and look at all institutional and political setting, & their interactions in order to combine the need of flexibility with security Identify the various combination of Employment Protection and Social Protection systems available

27 KEY Messages Need to protect the transitions on the Market More flexibility does not mean more mobility: the case of CEE countries; Need for a coherent policy package: much debate focused on the impact of EPL on LM outcomes: weakening of EPL in hope of boosting job creation Need to capture the complexity of the institutional and policies settings & their interactions

28 Challenges for moving forward Further efforts on conceptualization How to adjust the knowledge on this topic to emerging countries? Link-up with the macro-economic level Operationalization at the country level Establish the process Need for empirical feedbacks

29 THANK YOU

30 (ANNEX)The Case of the EW Index One of the 10 areas measured by the DB report Issue of labour regulations likely to be more controversial when the objective is to reduce costs; likely to undermine the purpose of labour law EWI is a composite of 3 sub-indices: difficulty of hiring; rigidity of working hours; difficulty of firing; + firing cost indicator & non wage labour cost Countries are ranked according to their score

31 (ANNEX) Using Cost-Benefit Analysis Example: Worker Security Costs: severance pay, dismissal notification, likelihood of tribunals; UI contributions, experience rating Benefits: LF coverage; percentage of income replacement; availability and use of job search assistance, training programmes; job turnover

32 (ANNEX) Assessing the interaction of institutions and economy Other potential benefits (for example, on productivity or macro stability) left to ex-post assessments Yet endogeneity problems (Bertola, 2007; Rodrik, 2005); particularly severe in crosscountry studies

33 (ANNEX)Debate on Min wages What theory tells us Ambiguous (MW affecting the composition of unemployment) generated a vast literature of empirical work on the effects of MW Effects of MW depend on a serie of institutional variables, incl. the degree of compliance, enforcement, sanctions for non compliance, and size of uncovered sector These issues are much more likely to be relevant in developing countries What evidence shows: Focus on the effects of MW on wages (+) & Employment, less on inequality & poverty But possible adverse effects on Employment, which depend on the type of economy, level of MW, compliance, etc