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The Cost of Job Security Regulation:Evidence from Latin American Labor Markets
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Comments
References
Footnotes
1. Lazear (1990).
1. In Argentina, the government observed that during discussions on proposed modifications to existing legislation, employers' representatives from the financial and construction sectors favored centralized over decentralized negotiations while the opposite was true in the case of representatives from industry. Also, employers' representatives from large firms were rather indifferent to this issue, while representatives from small firms expressed a strong preference for decentralized labor negotiations.
Heckman is with the University of Chicago, the American Bar Foundation, and the National Bureau of Economic Research.
Pagés-Serra is with the Inter-American Development Bank.
Footnotes
1. See, for example, Abraham and Houseman (1994); Blank and Freeman (1994); Freeman (2000) and the papers he cites.
2. In Chile, compensation to a worker who quits occurs only after the seventh year of service and only if the worker chooses to set up an account.
3. In Brazil, the fund is called the Fundo de Garantia do Tempo de Serviço (Seniority Fund); in Peru, Compensación por Tiempo de Servicios (Seniority Compensation); in Colombia, Fondo de Cesantía (Dismissal Fund); and in Panama, Fondo de Antiguedad (Seniority Fund).
4. In Brazil a worker gains access to this fund only in the case of dismissal.
5. Another important component of dismissal costs in some countries stems from the specific regulations that govern collective dismissals. Because information on those regulations is not available for most countries of the region, we did not include them in our discussion or measurements.
6. Bertola (1990); Grubb and Wells (1993); OECD (1993; 1999); Márquez (1998).
7. Lazear (1990).
8. This measure is based on the index developed in Pagés and Montenegro (1999).
9. Bertola (1990).
10. Bertola (1990); Bentolila and Bertola (1990).
11. Bentolila and Saint Paul (1994).
12. Risager and Sorensen (1997).
13. Risager and Sorensen (1997).
14. Bertola (1990).
15. Hopenhayn and Rogerson (1993).
16. Lindbeck and Snower (1987).
17. Caballero and Hammour (1997).
18. Kugler (2000).
19. Pagés and Montenegro (1999).
20. Lazear (1990).
21. Most of these projects were developed under the IDB research network project "Labor Market Legislation and Employment in Latin America," coordinated by James Heckman and Carmen Pagés-Serra.
22. These studies estimate hazard rates. The hazard rate is defined as the probability that an employment or unemployment spell ends at time t, conditional on its having lasted a given period of time (for example, one month, one year).
23. Kugler (2000). In this study, tenure is measured by the duration of incomplete spells.
24. In her study, Kugler performs two types of analysis. First, she uses a difference-indifference estimator to analyze whether changes in average duration of employment (unemployment) are statistically significantly different in the formal than in the informal sector. Second, she estimates an exponential duration model to control for changes in demographic covariates, pooling data from before and after the reform and using interaction terms to assess the differential impact in the formal and in the informal sector.
25. Saavedra and Torero (2000).
26. Paes de Barros and Corseuil (2000).
27. Kugler shows that lower severance pay may induce high-turnover informal firms to move to the formal sector. Under the assumption of no overlap in the distribution of turnover between covered and uncovered firms, or that entry to the covered sector comes from the high end—or at least from the end that is higher than the formal sector—this shift results in higher turnover in both the formal and the informal sector. Fortunately, higher turnover in the informal sector biases the difference-in-difference estimator downward. Therefore, a positive estimate still provides substantial evidence of increased turnover in the formal sector.
28. Hopenhayn (2000).
29. Saavedra and Torero (2000); Mondino and Montoya (2000). The data for the Peruvian study cover firms with more than 10 employees in all sectors of the economy. The Argentinean study only covers manufacturing firms. Given the nature of these surveys, they are better proxies for formal employment than for employment as a whole. The data used in these two studies do not capture job creation by new firms, since both panels are based on a given census of firms, without replacement.
30. The job security elasticities obtained for Peru seem somewhat too large when compared with the wage elasticities estimated in that same study. One explanation for this seemingly high elasticity in Peru is that this measure is upwardly biased by a simultaneity problem arising from the construction of the job security variable. Thus, both the Peruvian and the Argentinean studies construct explicit measures of job security based on the equation
where λj is the layoff rate in sector j at time t, Tjt is average tenure in sector j, time period t, Pjt is the share of firms in sector j, time period t, that are covered by regulations, and SPjt is the mandatory severance pay in sector j, given average tenure Tjt. Because this measure provides variability across sectors and periods, it affords a more precise estimation of the impact of job security than does a before-and-after comparison. Yet such measures may also be correlated with the error term in a labor demand equation, since the tenure structure of a firm might be correlated with its employment level. The fact that average layoff rates vary vary by sector may also lead to simultaneity if sectors with higher layoffs have lower employment. Periods or sectors with low employment may be associated with less job creation, high average tenure, and, consequently, high measures of job security. The Argentine study shows that fixing tenure to the period average reduces the estimated elasticity of job security. A job security elasticity between 1/3 and 2/3 of the wage elasticity seems a more realistic estimate of its impact.
31. Kugler (2000).
32. Downes and others (2000). The relevance of these findings, however, is reduced by the limitations of their data. While most of the studies quoted in this section are based on individual firm or sectoral data, their study is based on nationwide data for a relatively short sample of years.
33. Pagés and Montenegro (1999).
34. Márquez (1998).
35. Anderson (1993).
36. Lazear (1990).
37. Grubb and Wells 1993).
38. Addison and Grosso (1996).
39. Nickell (1997).
40. OECD ( 1999).
41. Blanchard (1998); Esping-Andersen (forthcoming); Jackman and others (1996); Nickell (1997); Lazear (1990); Elmeskov and others (forthcoming); Scarpetta (1996).
42. Lazear (1990).
43. Márquez (1998).
44. Pagés and Montenegro (1999).
45. These specifications should include a measure of labor costs encompassing both wages and nonwage labor costs. Unfortunately, a complete and comparable measure of labor costs across countries and time is not available.
46. Pagés and Montenegro (1999).
47. This is consistent with Márquez (1998).
48. In the case of Chile, Pagés, and Montenegro (1999) find that the large effect of job security on youth employment rates was offset by a large decline in participation rates with no significant effects on unemployment.
49. Freeman (2000).
50. See Abraham and Houseman (1994); Blank and Freeman (1994).
51. OECD (1999).
52. Bertola, Boeri, and Cazes (2000).
53. See OECD (1999) for a description of dismissal costs in OECD countries and the cost divergences between blue- and white-collar workers.
54. Data are from Maloney (1999).
55. Data are from World Development Indicators Database (World Bank).
56. Data are from United Nations Population Statistics.
