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TABLE 2.4 Unemployment and Long-Term Unemployment, Selected European and North American Countries, 2003
TABLE 2.4 Unemployment and Long-Term Unemployment, Selected European and North American Countries, 2003
Flexible labor
market policies
Active Labor Market Policies
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
OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125.
The U.S. labor market is relatively unregulatedThe U.S. labor market is relatively unregulated
OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125.
Stronger Employment Protection limits flows into, out of unemploymentStronger Employment Protection limits flows into, out of unemployment
OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125.
Stronger employment protection lowers ER, raises URStronger employment protection lowers ER, raises UR
OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125.
Stronger employment protection raises long term unemploymentStronger employment protection raises long term unemployment
OECD. “Employment Protection Regulation and Labour Market Performance.” OECD Employment Outlook 2004: 61-125.
Stronger employment protection leads to
increased use of temporary employment
Employment protection atypically harms young workers, protect old workers
0
5
10
15
20
25
30
0 0.5 1 1.5 2 2.5 3 3.5 4
OECD employment protection legislation (EPL) index
Unemployment rate
Unemployment Rate for ages 15-24
Unemployment Rate for ages 25-54
Wage dispersion: ratio of the 90th percentile to the 10th percentile wage
1980-1980-19841984
1985-1985-19891989
1990-1990-19941994
1995-1995-19991999
Δ 1999-1980Δ 1999-1980
AustraliaAustralia 2.88 2.83 2.82 2.94 0.06
FinlandFinland 2.49 2.50 2.39 2.36 -0.13
FranceFrance 3.18 3.19 3.21 3.07 -0.11
GermanyGermany 2.88 2.86 2.79 2.87 -0.01
JapanJapan 3.08 3.15 3.07 2.99 -0.09
NetherlandsNetherlands 2.47 2.55 2.60 2.85 0.38
New ZealandNew Zealand 2.89 2.90 3.06 3.28 0.39
SwedenSweden 2.01 2.09 2.11 2.23 0.22
UKUK 3.09 3.3 3.39 3.45 0.36
USAUSA 3.91 4.23 4.39 4.59 0.68
Flexible wages result in lower unemployment ratesFlexible wages result in lower unemployment rates
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 noticeEmployer 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.
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
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.
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.
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.
Recession
Source: Federal Reserve Bank of Dallas. Southwest Economy November/December 2007