What is this paper about? Labour market institutions EPL: - - PowerPoint PPT Presentation

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What is this paper about? Labour market institutions EPL: - - PowerPoint PPT Presentation

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What explains the rigidity of labor regulations across countries and over time? The roles of structural reforms, growth and inequality Nauro F Campos Jeffrey B Nugent Brunel University, ETH and IZA Univ. of Southern

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What explains the rigidity of labor regulations across countries and

  • ver time? The roles of structural

reforms, growth and inequality

Nauro F Campos Jeffrey B Nugent

Brunel University, ETH and IZA Univ. of Southern California and IZA

For presentation at the WIDER Conference on Inequality: Measurement, trends, impacts and policies 5-6 September 2014, Helsinki

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What is this paper about?

  • Labour market institutions
  • EPL: employment protection legislation
  • EPL can be source of “LM rigidity”
  • Changes in the level of EPL over time and

across countries: Reform and Rigidity

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Contribution of the paper

  • Empirical and policy
  • Current EPL literature:

– mostly confined to the post-1995 period – otherwise concentrated on two regions – focus on the level of regulation

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Two Main Objectives

  • 1. Extend EPL from Botero et al, QJE 2004
  • 2. Assess the adequacy and potential use of

the resulting index

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Objective 1

  • Extend Botero, Djankov, La Porta, Lopez-

de-Silanes and Shleifer QJE 2004 index

  • 85 countries in year 1997
  • Extend it to many more countries (145)
  • extend it backwards in time to at least 1960

where possible (and forward to 2000-4)

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Objective 2

Assess this new index (LAMRIG) by –replicating Botero et al (cross-sectional); efficiency, political & legal theories of EPL – panel: over time (1960-2004) and more countries (100+) – examining EPL changes instead of levels – evaluating a more extensive set of potential LMR / LAMRIG determinants –evaluating effects of LAMRIG on growth and income inequality

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Main findings

Botero et al: find that legal theories are much more important than efficiency and political Main findings here: legal theories less strong Some evidence for efficiency theory, little for political, but mostly role of other structural reforms (-TL/+FL) Evidence for Freeman conjecture: LAMRIG lowers inequality, ambiguous on growth

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Outline of this talk

  • 1. Introduction and motivation √
  • 2. How did we construct LAMRIG?
  • 3. What does it look like? LAMRIG varies
  • ver time in individual countries of different

legal origin (China, India, Jordan, Zambia)

  • 4. How good is it? Assessing LAMRIG
  • 5. Conclusions
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Measuring LAMRIG

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Making of LAMRIG: two pillars, 3 steps, checks and balances

  • Botero et al QJE 2004 EPL
  • ILO’s NATLEX
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Botero et al EPL

Employment law index i. Alternative employment contracts ii. Cost of increasing hours worked

  • iii. Cost of firing workers
  • iv. Dismissal procedures
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Pillar Number 2: NATLEX

  • i. contracts
  • ii. hours

iii.firing

  • iv. dismissal
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Procedure (first step)

  • Start with Botero EPL for 1997 (web

appendix with information on components)

  • From NATLEX: compile labour laws info

(“books in 1997”; on 4 EPL components)

  • Check how NATLEX maps into EPL
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Procedure (second step) Extend the cross-section

  • From NATLEX, compile relevant labour

law information (4 components) for 140+ countries

  • Code NATLEX into an extended EPL for

1997 (which we call LA M RIG)

  • From 80+ to 140+ countries
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Procedure (third step): Extend into panel

  • Compile relevant labour laws information

(4 components) from NATLEX for 140+ countries since 1948

  • Code NATLEX into panel LAMRIG
  • Note: in 5 year cells/intervals

(ie 1950-54, 1955-59, 1960-64, 1965-69, 1970-74, 1975- 79, 1980-84, 1985-89, 1990-94, 1995-1999, 2000-04)

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Checks

Compare this “first vintage” LAMRIG to: Pre 1995 OECD: Blanchard and Wolfers, Allard LAC: Heckman and Pages Post 1995 Doing Business Surveys Heritage Foundation LEXADIN electronic database (on-line)

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Balances

  • Check academic papers (WB reports etc)

for single countries with over time indexes

  • National level searches for both data and

analyses of the labour laws over time (yes, we mean google searching for specific labour laws…)

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What does LAMRIG look like?

Some country examples

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0.5 1 1.5 2 2.5 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4 1995-9 2000-4 New Zealand Portugal

Figure 1. Rigidity of Employment Protection Legislation: New Zealand and Portugal (Botero et al QJE 2004)

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0.5 1 1.5 2 2.5 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4 1995-9 2000-4 New Zealand Portugal

Figure 2. LAMRIG across New Zealand and Portugal since 1960

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0.5 1 1.5 2 2.5 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4 1995-9 2000-4 Zambia Botswana Ethiopia Philippines Jordan

Figure 3. LAMRIG across Selected LDCs since 1960

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0.5 1 1.5 2 2.5 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4 1995-9 2000-4 China India Brazil

Figure 4. LAMRIG across BIC since 1960

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Some Country Patterns

  • Botero et al

– Contrasted New Zealand and Portugal, which despite similar GDPPC had different Legal Origins – But at beginning of 1970s, Portugal’s ELR was not as high

  • India: Started Low, gradual increase
  • China: Started high but has gradually

declined

  • Jordan: High but finally fell in late 1990s
  • Zambia: Inverted U Pattern Over time
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Table III.1

Country 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4 1995-9 2000-4 China 2 2 2 2 2 1 .8 1 .6 2 1 .6 2 1 .4 1 India 1 .1 1 .1 1 .1 5 1 .2 1 .3 1 .3 1 .3 1 .5 3 Jordan 1 .7 1 .7 1 .7 1 .7 1 .7 1 .7 1 .7 1 .4 6 1 .5 2

New Zealand

0 .1 4 0 .1 4 0 .2 7 0 .4 8 0 .4 8 0 .4 8 0 .4 8 0 .4 8 0 .5 0

Portugal

0 .0 6 0 .3 1 1 .2 8 2 .2 9 2 .2 9 2 .3 9 2 .4 9 2 .4 2 2 .4 3 Zambia 1 .0 5 1 .0 5 1 .0 5 1 .3 1 .3 1 .1 5 1 .2 5 Botswana 0 .9 0 .9 1 .0 1 .0 1 .3 1 .3 1 .0 5 Ethiopia 1 .3 1 .3 1 .3 1 .3 1 .5 3 1 .5 3 1 .5 3 Philippines 1 .4 1 .4 1 .6 1 .6 1 .6 1 .6 9 1 .6 9 1 .6 1 1 .8 0

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Assessing LAMRIG

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These are econometric results reported in Botero et al. QJE 2004

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Summary of the endless battery of econometric results

We replicate Botero et al for the cross-section and LAMRIG in levels (1995-1999) LAMRIG in first differences = reform -- but we can not replicate Botero for panel = weak effect of legal Alternative explanations? weak evidence from structural factors (ineq, govt size, nat res), economic crises (various measures), political (strikes, democ, political/executive constraints) BUT “other reforms” are promising

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Replicating Botero et al Model with LAMRIG

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Extending Botero et al with other determinants

We focus on four main sets of LAMRIG determinants besides GDPPC and Legal Origins

– Structural factors – Political factors (crises) – Economic crises (shocks) – Relationship with other reforms

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We also have some evidence on (Richard) Freeman’s conjecture

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Summary and Conclusions

This paper offers a new index of labor market legislation rigidity: panel since 1960 Botero al: efficiency, political & legal theories Our main findings: legal theories less strong, weak evidence for efficiency theory (per capita GDP), little for political, but mostly... The role of other structural reforms (-TL/+FL) LAMRIG lowers Y inequality, ? effect on growth

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Thank you very much

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Botero et al Study Political Theories

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Replicating Botero et al Model with LAMRIG

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Replicating Botero et al Model with LAMRIG

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Extending Botero et al with other determinants

We focus on four main sets of LAMRIG determinants besides GDPPC and Legal Origins

– Structural factors – Political factors (crises) – Economic crises (shocks) – Relationship with other reforms

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