The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence

Abstract

Using 1994-98 International Adult Literacy Survey (IALS) microdata, this paper investigates the impact of employment protection laws on the incidence of temporary employment by demographic group. More stringent employment protection for regular jobs is predicted to increase the relative incidence of nonemployment and temporary employment among employees for less experienced and less skilled individuals. I test this reasoning using IALS data for Canada, Finland, Italy, the Netherlands, Switzerland, the United Kingdom and the United States, countries with widely differing levels of mandated employment protection (EPL). Multinomial logit analyses (with nonemployment, temporary employment and permanent employment as the possible outcomes) find that the strength of such mandates (as measured by the OECD) is positively associated with the relative incidence of joblessness for younger individuals, women and immigrants, controlling for demographic factors and country-specific effects affecting nonemployment, and temporary and permanent employment. Moreover, among wage and salary workers, EPL is positively associated with the relative incidence of temporary employment for young workers, native women, immigrant women and those with low cognitive ability. I subject these findings on the incidence of temporary employment among employees to a variety of robustness checks. For example, the effects largely hold up when I adjust for the possible sample selection due to the fact that employment to population ratios differ across countries, when I disaggregate the effects of the OECD employment protection index into its component parts, when I exclude countries with the highest or lowest levels of employment protection mandates, and when I exclude those of school attendance age (16-25 years old). And, the effects of protection on the relative incidence of nonemployment for young and less skilled individuals, as well as the incidence of temporary employment among young, female, and immigrant employees are stronger in countries with higher levels of collective bargaining coverage. These patterns suggest a connection between binding wage floors and the allocative effects of employment protection mandates.