Labour market segmentation vs. EPL reform Jrg PESCHNER European - PowerPoint PPT Presentation

Labour market segmentation vs. EPL reform Jörg PESCHNER European Commission, DG EMPL, Employment Analysis Warsaw – 8 October 2014

Climbing unemployment rates in most places, Strong divergence DG EMPL‘s regional projection software Source: LFS data, displayed using EU: 7.2%

Climbing unemployment rates in most places, Strong divergence DG EMPL‘s regional projection software Source: LFS data, displayed using EU: 10.8%

Build-up of temporary employment … … stopped over the crisis Temporary employment, % change in selected Member States 100% 80% 2003-2007 60% 2007-2013 40% 20% 0% -20% -40% -60% Source: Eurostat EU LFS

Strong evidence for increasing structural component since crisis started Unemployment rate in % Share of long-term in all unemployed (%) 20 60 EU28 EU28 18 55 Poland Poland 16 50 14 45 12 40 10 35 8 30 6 4 25 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Structural Labour Market reforms become urgent necessity Fight mismatches Fight against LM segmentation Prepare for workforce shrinkage

Segmentation and Labour Market situation: Is there a typology of Member States in the EU ? Factor&Cluster analysis based on 27 labour-market related indicators

Factor Score and Cluster Analysis employment, high share of low-skilled, … High share in (involuntary) temporary 2.00 PT 1.50 IT ES MT EL 1.00 NL PL LU SI CY 0.50 FR BE HR SE 0.00 FI AT RO IE DE DK -0.50 UK HU CZ -1.00 SK Segmentation BG LV -1.50 EE LT -2.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 High (youth) employment, low unemployment, strong employment Strong performance growth, strong LLL, long working life,…

employment, high share of low-skilled, … High share in (involuntary) temporary Factor Score and Cluster Analysis 2.00 PT 1.50 IT ES MT EL 1.00 PL NL LU SI CY 0.50 BE HR FR SE 0.00 AT FI RO IE DK -0.50 DE UK HU CZ -1.00 Segmentation SK BG LV -1.50 EE LT -2.00 -2.50 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 High inequality, low ULC dynamics, Adequacy problem, high inequality high (in-work) poverty, …

Duality and Wages: Results of a contrast regression (2011) Considerable wage penalty on temporary contracts ! Share of temporary workers Wage-penalty adjusted - regression contrast 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 BG SK UK LU BE CZ AT HU GR IT EU27 DE FI SI NL PT ES PL Source: DG EMPL calculations, based on EU-SILC 2010, SES 2006, see also EiE2010

Continue effort: structural labour market reforms The role of EPL Source: Eurostat EU-LFS

EPL and Temporary Contracts 6 Correlation: -0.04 5 EPL on temporary contracts TR 4 LU FR 3 EE NO ES BE GR 2 IT SI PT PL FI DK CZ HU AT DE 1 NL LV CH SE IE IC UK 0 0 5 10 15 20 25 30 Share of temporary in all employees Source: OECD (EPL), Eurostat EU LFS

Simulation exercise for Poland With DG EMPL's Labour Market Model Reduce Poland's EPL down to the level of Denmark - Administrative Cost of Firing -23% - Severance Payment Source: Eurostat EU-LFS

Labour-Market Model: Calibrated parameters on EPL OECD Index III Modified Index Share of Severance Pay Overall EPL .. weighted Austria 2.41 2.37 30.8% Belgium 2.61 2.36 36.3% Czech Republic 2.32 2.76 30.1% Germany 2.63 2.90 35.5% Denmark 1.91 1.82 23.4% Spain 3.11 2.88 38.6% Finland 2.29 2.35 40.5% -23% France 3.00 2.66 49.3% Italy 2.58 2.31 38.5% Netherlands 2.23 2.59 44.8% Poland 2.41 2.35 23.2% Sweden 2.06 2.62 34.1% Slovak Republic 2.13 2.61 42.6% United Kingdom 1.09 1.41 30.7% Source: Berger, Gstrein, Keuschnigg, Miess, Müllbacher, Strohner, Winter-Ebmer: Development/Maintenance of the Labour Market Model (Final Report), Institut für Höhere Studien, Universität St. Gallen, p. 25.

Lowering EPL: Transmission Path in the Labour Market Model Reduction of firing costs Job surplus of an More job separations employment relationship Wage bargaining Higher frictional Unemployment Elasticity(EPL)=0.17 Higher firms' Higher wages rent Higher labour Higher LM demand participation Lower Employment Higher Employment

Lowering EPL in Poland: Long-term impact on … GDP Output Hours Worked per worker Employment Wages -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% Unemployment rate: +0.11 %-pts Labour market participation +0.04%-pts

Lowering EPL in Poland: Long-term impact on wages … 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% All Low-Skilled Medium-Skilled High-Skilled

Lowering EPL in Poland: Long-term impact on unemployment … 0.18 %-pts. 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00

Conclusion: Lowering EPL in Poland: Long-term impact - Strong positive overall employment gains questionable - But: Higher frictional unemployment reflects more hiring, more firing -> higher job turnover Thank you.