January 20, 2011 Labour Court Inputs, Judicial Cases Outcomes and Labor Flows: Identifying Real EPL Henri Fraisse, Banque de France Francis Kramarz, Crest-Insee Corinne Prost,Crest-Insee
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Literature • EPL and Labor Market Outcomes and the “usual” cross-country panel analysis (Lazear, 1990) • Change in labor laws targeting different populations (Boeri and Jimino, 2003, Bauer & alii, 2004, Behaghel &alii, 2007) • Judicial breaks in the Employment-at-will doctrine in the 1970’s and the 1980’s in the US (Autor, Donohue and Schwab, 2004 / Autor, Kerr, and Kuegler, 2007) CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Problems • Caseload • Enforcement – California ~= 1 000 cases – Worker’s victory: in 1986 (Dertouzos, 1986) • France : 75% – France ~= 160 000 cases • UK: 50% every year (~=30 % of the – Settlement rate number of workers • France: 20% enrolling at the National • UK: 60% Unemployment Agency, ANPE) CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion EPL and Labour Market Outcomes • EPL grants the possibility of challenging “unfair” dismissals → • Labor Court environment and inputs Judicial outcomes when workers challenge “unfair” dismissals → Firing costs → Labor market outcomes CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Firing cost and unfair dismissal : Cost-Benefit analysis •In France, most cases are dismissals. • For a dismissal for personal motive, the firm incurs a minimum cost ( c m ) if the dismissal is unchallenged by the worker. This cost c m is lower than the maximum cost c M , which leads the worker not to sue the firm. • Probability that the worker files a suit, p f , • Probability p c that the case ends with a formal agreement (judge) • When the conciliation fails, probability that the worker wins, p w . • Judge tries to reach an agreement at an “intermediary” cost c c , given by the jurisprudence, always lower than c M . • Both worker and firm know p w , specific to each case • Appendix and text discuss when there is a disagreement on p w (for a real eq.) •Firm’s expected firing cost of choosing c m } ( ) m [ ] ( ) { ( ) ( ) = + + − + + − + + − E c p p ( c l ) ( 1 p ) p c F 1 p c l 1 p c f c c c c w m w m f Where F compensatory award to the worker and l c is firm’s litigation cost at conciliation, l is the firm’s litigation cost at trial CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Firing cost and unfair dismissal : Cost-Benefit analysis • The firm chooses dismissals rather than fully paying if } ( ) [ ] { ( ) ( ) + + − + + − + + − < p p ( c l ) ( 1 p ) p c F 1 p c l 1 p c c f c c c c w m w m f m M • The worker chooses to challenge if ( ) ( ) − > + + − − > c k c or p c F 1 p c k c c c m w m w m m k c being the cost of litigation for the worker at the conciliation stage, k being the cost at the trial stage − > Assuming that then, c k c − + − c c m c c k k > = c m c • The worker goes to trial if p p w w F • and accepts the agreement if p < p w w − − c c l • The firm prefers dismissing if < = * * M m F is assumed p p w w F large enough so that if a loss at trial is sure, the firm prefers paying the maximum − − + c c l l • The firm accepts conciliation if > = * c m c p p w F w CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Equilibrium ( ) + + − + p ( c F ) 1 p c l w m w m t c M c + l c c c m p w * * p p p w w w no judicial case conciliation trial no judicial case Figure 1: Firing cost CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Equilibrium ( ) + + − + p ( c F ) 1 p c l w m w m t c M c + l c c c m p w * * p p p w w w no judicial case conciliation trial no judicial case Fig. 2: Firing cost, case outcomes and an increase in the litigation costs of the firm CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set - Identification-Results - Conclusion Equilibrium ( ) + + − + p ( c F ) 1 p c l w m w m t c M c + l c c c m p w * * p p p w w w no judicial case conciliation trial no judicial case Fig. 3: Firing cost, case outcomes and an increase in the litigation cost for the worker CPB, January 2011 Fraisse, Kramarz and Prost
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Prud’hommes • Principle: peer justice with conciliation board • Judges elected every 5 years from union and federation lists • Labor court: judges from labor union, judges from employer federation, same number of each (even total) • 5 “sections” (at most): Agriculture, Manufacturing, Trade, Management and Service • 264 Labour Courts spread over metropolitan France Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Labour market outcomes and prud’hommes data set • 4 rounds of prud’hommes elections 1987/1992/1997/2002 • Individual cases brought to prud’hommes from 1990 to 2004 (2 millions of cases) • Each city (more than 36,000) are allocated to one court • Labour flows: Insee Sirene files on establishments 1990- 2004, with city •For this paper, we focus on the period 1996-2003 Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Table 1: Judicial Indicators: Definition of Variables Names Definition Filing rate Number of cases filed over number of dismissals Worker Lawyer rate Number of cases where the worker is represented by a lawyer over the total number of cases Conciliation rate Number of cases leading to a conciliation or an agreement between the parties over the total number of cases Trial rate Number of cases reaching the trial stage over the total number of cases Winning rate Number of cases won by the worker at trial over the total number of cases Notes: These variables are computed at the jurisdiction level (jurisdiction*year) Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Table 2: Summary Statistics: Judicial Indicators and Job Flows Mean Std. Min Max Judicial Indicators : Filing rate 0.22 0.11 0.03 0.98 Worker Lawyer rate 0.48 0.15 0.00 0.95 Conciliation rate 0.20 0.09 0.00 0.77 Trial rate 0.61 0.10 0.19 0.95 Winning rate 0.45 0.09 0.09 0.93 Job Flows : Job Destructions 0.16 0.04 0.07 0.52 Job Creations 0.16 0.06 0.05 0.71 Net Job Creations 0.00 0.07 -0.63 0.43 Notes: Means of the jurisdition*year indicators, over the 264 jurisdictions and the years 1996- 2003. Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Figure 4: Number of filed cases 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 19 90 1991 1 992 19 93 1994 1995 19 96 1997 1998 19 99 2000 2001 2002 2003 2004 Sources: Prud’hommes data from Ministry of Justice Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Figure 5: Map of the universities training lawyers Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Figure 6: Map of the changes in the lawyer density between 1996 and 2003 0,14 - 2,54 (15) 0,05 - 0,14 (27) 0,03 - 0,05 (24) 0 - 0,03 (24) -0,03 - 0 (6) Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Figure 8: Allocation of Judges (without the 6 Largest Jurisdictions) .008 S hare of Judg es (199 3-2002 ) .006 .004 .002 0 .005 .01 .01 5 Sh are of E m p loym en t (1 991) Fraisse, Kramarz and Prost CPB, January 2011
Intro - Model - Institutional Setting - Data Set -Identification-Results - Conclusion Descriptive Statistics Figure 9: Productivity of Judges across Jurisdictions Average Number of Cases Filed Every Year by Judge 50 40 30 20 10 0 0 .02 .04 .06 .08 Share of Total Employment Fraisse, Kramarz and Prost CPB, January 2011
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