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TABLE 2.4 Unemployment and Long-Term Unemployment, Selected European and North American Countries, 2003
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Flexible labor market policies Active Labor Market Policies
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Types of labor market policies Employment Protection (protect jobs) –Firing restrictions –Prior notice –Mandatory Severance –Minimum Wages, Mandatory benefits Active Labor Market Policy (create jobs) –Training for unemployed –Wage subsidies Passive Labor Market Policy (protect workers) –Unemployment Insurance
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OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125. The U.S. labor market is relatively unregulated
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OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125. Stronger Employment Protection limits flows into, out of unemployment
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OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125. Stronger employment protection lowers ER, raises UR
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OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125. Stronger employment protection raises long term unemployment
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OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125. Stronger employment protection leads to increased use of temporary employment
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Wage dispersion: ratio of the 90th percentile to the 10th percentile wage 1980- 1984 1985- 1989 1990- 1994 1995- 1999 Δ 1999-1980 Australia2.882.832.822.940.06 Finland2.492.502.392.36-0.13 France3.183.193.213.07-0.11 Germany2.882.862.792.87-0.01 Japan3.083.153.072.99-0.09 Netherlands2.472.552.602.850.38 New Zealand 2.892.903.063.280.39 Sweden2.012.092.112.230.22 UK3.093.33.393.450.36 USA3.914.234.394.590.68
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Flexible wages result in lower unemployment rates
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Employment–at-will doctrine In the U.S., workers and firms have the right to walk away from the employment contract Worker can quit without prior notice Employer can terminate without prior notice Value to worker—no indentured servitude allows worker to use quit threat to insure proper treatment Value to firm—no requirement of paying for labor that is no longer profitable.
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Tort Law Exceptions to Employment-at-Will Doctrine Implied contract (40 states) –Michigan: Toussaint vs Blue Cross & Blue Shiled (1980) – handbook specified dismissal for just cause –California: Pugh vs See’s Candies – contractual rights may be implied by longevity of service, promotions, … Public Policy: Cannot dismiss workers for refusing to perform duties in violation of the law (Whistle Blower laws, Jury duty). Good Faith: Cannot dismiss workers to prevent them from receiving earned benefits
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Count of states recognizing exceptions to the employment- at-will doctrine, 1958 97. David H. Autor “Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing.” Journal of Labor Economics January, 2003.
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Temporary help industry growth, 1979 95, and number of states recognizing at-will employment exceptions David H. Autor “Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing.” Journal of Labor Economics January, 2003.
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Conclusion Exceptions to employment at will responsible for 20% of growth of temporary help industry in the U.S. Only the Implied contract exception matters for temporary employment growth David H. Autor “Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing.” Journal of Labor Economics January, 2003.
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Recession Source: Federal Reserve Bank of Dallas. Southwest Economy November/December 2007
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