Employment Protection Regulation and
Labour Market Performance
Workshop: "Measuring Law and Institutions"
Conseil d’Etat - December 14th, 2006
Comments by:
Stéphane SAUSSIER
ADIS, University Paris South
ATOM, University Paris Sorbonne
1
Labour Market Performance:
A contractual issue…

There exist a trade-off between rigidity and flexibility in
labour contracts

A need for flexibility for firm to adapt to changing market
conditions

But this flexibility does not favor

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Incentives (ratchet effect)
Implication of workers
Incentives to develop human asset specificity, training, …
A need for rigidity for workers employment security
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But this rigidity has a cost

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Firms anticipate futur problems and do not hire
Move to more flexible labour contracts : temporary workers and duality of
the labour market / insiders vs. outsiders.
2/8
Labour Market Performance:
…But not only

This is a well know trade-off studied in
contract theories but,
Institutions and laws matters!
 They define a kind of lower and upper
bounds of the trade-off
 They define the rules of the game!

3/8
Employment Protection Laws as Rules of the game:
WHAT ARE WE MEASURING? (1)

The rules vs. the way rules are applied

EPL depends crucially of 1/judicial practices and court
interpretation of legislative and contractual rules 2/as
well as the way economic actors perceive rules

What are the possible ways to take into account in constructed
indicators the way rules are applied? And perceived?

Is it possible to stress differences between Civil Law and
Common Law countries from this point of view? Is it
relevant?
4/8
Employment Protection Laws as Rules of the game:
WHAT ARE WE MEASURING? (2)

The rules vs. the way rules are applied
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Two kinds of contracts: permanent vs. temporary
workers
Two EPL but

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For temporary employment, there is an uncertainty concerning
the extend to which regulatory provisions might be enforced in
practice!
At the same time, regulation on temporary agreement makes the
difference in cross-country comparisons! This is the less reliable
measure that drives the results.

How did you deal with that?
5/8
Employment Protection Laws as Rules of the game:
WHAT DO WE HAVE TO MEASURE? (1)

EPL is only one possible instrument to set up a good
institutional framework for contracting parties to found out
a efficient flexible/rigid contract

A large set of other policy instruments exist

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Active labour market policy
Passive/active administration of unemployment benefits
…
Those other instruments might be complements or substitutes

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How to analyse the impact of one particular rule (e.g. EPL) on labour
market performance in isolation without taking into account the whole
picture?
How to take into account the « comprehensive » strategy of a country
without a clear theory of institutional complementarities? (BrousseauRaynaud 2006)
6/8
Employment Protection Laws as Rules of the game:
What consequence for labour market performances?
Results
 You looked for differences of EPLs impact across
demographic groups.

Why do not look for differences between sectors and activities?
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Those who need workers to develop human specific assets, who need
workers who have to be trained all over their careers might be
impacted differently
Specific “private institutions” might exist at a sectoral level
Strict EPLs reduce Flows into unemployment and flows out
of unemployment
Strict EPLs seem to increase Long term unemployment and
unemployment rate

And so what? What can we conclude without a welfare analysis?
7/8
Conclusion
Measuring law and institutions
 What do we have to measure?
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At what level? (Country vs. sectoral level …)
What are we measuring really?
What impacts at a micro level?
What impacts at a macro level?
8/8