1 Employment Protection Regulation and Labour Market Performance Workshop: "Measuring Law and Institutions" Conseil d’Etat - December 14 th, 2006 Comments by: Stéphane SAUSSIER ADIS, University Paris South ATOM, University Paris Sorbonne

2/8 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  Incentives (ratchet effect)  Implication of workers  Incentives to develop human asset specificity, training, …  A need for rigidity for workers employment security But this rigidity has a cost  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.

3/8 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!

4/8 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? Employment Protection Laws as Rules of the game: WHAT ARE WE MEASURING? (1)

5/8 The rules vs. the way rules are applied  Two kinds of contracts: permanent vs. temporary workers  Two EPL but 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? Employment Protection Laws as Rules of the game: WHAT ARE WE MEASURING? (2)

6/8 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 Active labour market policy Passive/active administration of unemployment benefits …  Those other instruments might be complements or substitutes 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? (Brousseau- Raynaud 2006) Employment Protection Laws as Rules of the game: WHAT DO WE HAVE TO MEASURE? (1)

7/8 Results You looked for differences of EPLs impact across demographic groups.  Why do not look for differences between sectors and activities? 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? Employment Protection Laws as Rules of the game: What consequence for labour market performances?

8/8 Conclusion Measuring law and institutions What do we have to measure?  At what level? (Country vs. sectoral level …) What are we measuring really? What impacts at a micro level? What impacts at a macro level?