European youth labour market in crisis: Does the deregulation of employment protection help?

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1 European youth labour market in crisis: Does the deregulation of employment protection help? 3 rd European User Conference for EU-LFS and EU-SILC Mannheim, March 213 Michael Gebel (University of Mannheim and MZES, Germany) and Johannes Giesecke (University of Bamberg, Germany)

2 1. Motivation Flexibilization of youth labour markets in Europe Besides macroeconomic conditions institutional factors such as EPL identified as the root of youths problems (Breen 25, Mills/Blossfeld 23) Targeted partial deregulation of EPL: aimed at increasing youths labour market integration chances (Esping-Andersen/Regini 2) Doubts on the effectiveness of the EPL reforms occurred: Central research questions: Did EPL reforms reduce youth unemployment? Or, did they only increase social inequality in terms of widespread temporary employment among outsiders (e.g. youths)? (DiPrete et al. 26, McGinnity/Gash ) 2

3 1. Motivation Existing empirical evidence cross-sectional studies of EPL effect on youth unemployment (Gangl 23; Breen 25) and youth temporary employment (Kahn, Baranowska/Gebel 21) Studies on EPL reform effects using the within-country variation in order to eliminate spurious correlations (Kahn 21, Gebel/Giesecke 211, Noelke 212) Our contribution 3-level approach to identify EPL effects using EULFS 21: individual, country, time effects of EPL indicators on youths exclusion risk (non-employment rate NEET ) (EUROFOUND 212) and inequality risks (temporary employment rate) testing for effect heterogeneity: Do the EPL effects differ? 3

4 Trends in EPL Trends in Employment Protection Legislation - AT BE DE DK ES FI FR GR IE IT NL PT SE UK Source: OECD (213) EPL temporary employment

5 Trends in EPL Trends in Employment Protection Legislation - AT BE DE DK ES FI FR GR IE IT NL PT SE UK Source: OECD (213) EPL temporary employment

6 Trends in EPL Trends in Employment Protection Legislation - AT BE DE DK ES FI FR GR IE IT NL PT SE UK Source: OECD (213) EPL temporary employment

7 3. Theory: Overview on EPL effects EPL regular (e.g. increasing restrictions on firing of permanent workers) EXCLUSION Youth non-employment INEQUALITY Youth temporary employment EPL temporary (e.g. lower regulations on use of temporary contracts) 7

8 3. Theory: Overview on EPL effects EPL regular (e.g. increasing restrictions on firing of permanent workers) EXCLUSION Youth non-employment lower hiring rates (dominates) lower firing rates INEQUALITY Youth temporary employment increased incentives to use temporary contracts EPL temporary (e.g. lower regulations on use of temporary contracts) 8

9 3. Theory: Overview on EPL effects EPL regular (e.g. increasing restrictions on firing of permanent workers) EXCLUSION Youth non-employment lower hiring rates (dominates) lower firing rates INEQUALITY Youth temporary employment increased incentives to use temporary contracts EPL temporary (e.g. lower regulations on use of temporary contracts)??? job creation effect: substitution effect: trap effect: Increased opportunities to use temporary contracts Interaction term: Effects of EPL temporary particularly strong if EPL regular high 9

10 4. Research design Data: European Labour Force Survey 21 + German Mikrozensus Western European countries (+7 Eastern European countries) Sample: labour market entrants (being not in ) - age group for those with primary or secondary - age group 2-29 for those with tertiary Design: multilevel model (3 levels: country, time, individual) two-step procedure instead of simultaneous maximum likelihood procedure (Franzese 25, Jusko/Shively 25) 1

11 4. Research design Micro level ( 1 st step ) Mean estimation of non-employment (ILO-based definition) and temporary employment incidence (EUROSTAT definition) separately for each country for each year Permanent contract Employed/self-employed Unemployed/inactive ( NEET ) Temporary contract Self-employed In Stratification by 2 gender (men vs. women) and 3 ISCED-based groups (low vs. medium vs. high ) 6 labour market entrants subgroups 11

12 4. Research design Macro level ( 2 nd step ) Pooled time series cross section analysis using the shares of non-employment and temporary employment from 1. step Fixed effects models Procedure to correct for uncertainty of 1st step estimation: EDV ˆ pjt p q Q 1 pq Z qjt pjt Q independent macrovariables Z: - time-varying EPL indices for permanent and temporary employment (OECD 212) - collective bargaining coverage (Visser 211) - GDP share of ALMP (OECD 212) - youth cohort size (Eurostat 212) - GDP growth (Eurostat 212) - KOF economic globalization index (Dreher et al. 28) 12

13 5.1. Level-1 results: Non-employment Trends in Youth Non-Employment - Men at be de dk es fi fr gr ie it nl pt se uk Education groups low medium high educaton

14 5.1. Level-1 results: Non-employment Trends in Youth Non-Employment - Men at be de dk + + es fi fr gr ie it nl pt se uk Education groups low medium high educaton

15 5.1. Level-1 results: Non-employment Trends in Youth Non-Employment - Women at be de dk es fi fr gr ie it nl pt se uk Education groups low medium high educaton

16 5.2. Level-1 results: Temporary employment Trends in Youth Temporary Employment - Men at be de dk es fi fr gr ie it nl pt se uk Education groups low medium high educaton

17 5.2. Level-1 results: Temporary employment Trends in Youth Temporary Employment - Men at be de dk + + es fi fr gr ie it nl pt se + uk Education groups low medium high educaton

18 5.2. Level-1 results: Temporary employment Trends in Youth Temporary Employment - Women at be de dk es fi fr gr ie it nl pt se uk Education groups low medium high educaton

19 5.3. Macro-level results: Non-employment Male High Female High EPL regular.9.2.9* (1.37) (.59) (2.6) (.81) (1.84) (.83) EPL temporary (-.4) (.1) (.1) (.6) (-.46) (-.94) EPL high regular ** -.2 * EPL temporary (.18) (-1.93) (.21) (-.52) (-2.61) (-1.33) Macro control variables Country Fixed effects Time Fixed effects Source: EULFS + MZ, -; own calculations. Remark: + p <.1, * p <.5, ** p <.1, *** p <.1 19

20 5.4. Macro-level results: Temporary employment Male High Female High EPL regular * (.92) (.34) (.1) (.66) (1.49) (2.34) EPL temporary -.3** -.4*** -.3*** -.3* -.4*** -.3*** (-2.81) (-4.46) (-3.54) (-2.29) (-4.77) (-3.82) EPL high regular * EPL temporary (-.68) (.6) (-.6) (-1.18) (-.81) (-1.3) Macro control variables Country Fixed effects Time Fixed effects Source: EULFS + MZ, -; own calculations. Remark: + p <.1, * p <.5, ** p <.1, *** p <.1 2

21 Sensitivity analyses (1) Central and Eastern Europe (2) Macro-level interactions: EPL * institutions (3) Macro-level interactions: EPL * crisis

22 Sensitivity analysis I: Central and Eastern Europe Trends in Employment Protection Legislation, CEE, CZ EE HU LT LV PL SK 1998 Source: OECD (213) EPL temporary employment 22

23 Sensitivity analysis I: Central and Eastern Europe Trends in Youth Non-Employment - Men cz ee hu lt lv pl sk

24 6.1. Sensitivity analysis I: Central and Eastern Europe Trends in Youth Temporary Employment - Men cz ee hu lt lv pl sk

25 6.1. Sensitivity analysis I: Central and Eastern Europe Non-employment Men Women High High EPL regular (1.17) (.34) (.48) (1.38) (.57) (.19) EPL temporary (-1.33) (-.2) (.24) (-.31) (-.1) (-.7) EPL high regular ** -.11* ** -.1* * EPL temporary (-1.4) (-2.38) (-1.78) (-1.5) (-2.7) (-1.73) Macro controls yes yes yes yes yes yes Country fixed effects yes yes yes yes yes yes Time fixed effects yes yes yes yes yes yes Source: EULFS + MZ, -; own calculations. 14 Western + 7 Eastern European countries Remark: + p <.1, * p <.5, ** p <.1, *** p <.1

26 6.1. Sensitivity analysis I: Central and Eastern Europe Temporary employment Men Women EPL regular.7**.5**.1.5.8***.5*** (2.8) (2.14) (.77) (1.48) (3.1) (2.89) EPL temporary -.3** -.2*** -.3*** -.3** -.3*** -.2*** (-2.44) (-2.99) (-4.7) (-2.32) (-3.44) (-3.49) EPL high regular * * EPL temporary (-.34) (.46) (-.65) (-.7) (-.7) (-1.71) Macro controls yes yes yes yes yes yes Country fixed effects yes yes yes yes yes yes Time fixed effects yes yes yes yes yes yes Source: EULFS + MZ, -; own calculations. 14 Western + 7 Eastern European countries Remark: + p <.1, * p <.5, ** p <.1, *** p <.1

27 6.2. Sensitivity analysis II: Interactions EPL*Institutions Interactive effects of EPL and other institutional variables LM institutions: Deregulation particularly effective when wage floors restrict employers flexibility (Lazear 199, Baranowska/Gebel 21) Collective bargaining coverage Minimum wage ETS institutions: Deregulation particularly effective when weak signalling capacity of system (Breen 25) Share of secondary students combining work & study (apprentices) Empirical results: No significant interactions! 27

28 6.3. Sensitivity analysis III: Impact of the crisis EXCLUSION Youth non-employment FLEXIBILITY/INEQUALITY Youth temporary employment EPL regular * GDP decline Mitigation of negative impact of crisis (for high-educated) Mitigation of negative impact of crisis (for low educated) EPL temporary * GDP decline No effect Mitigation of negative impact of crisis (for low educated) Source: EULFS -21; own calculations. 24 Western Eastern European countries. Models additionally include country fixed effects and main effect of GDP decline. 28

29 7. Conclusions No general trend towards increasing non-employment ( exclusion ) and temporary employment ( inequality ) for youths Deregulating the use of temporary contracts increases youth temporary employment risks but does NOT reduce non-employment risks Surprisingly consistent findings across and gender subgroups + CEE + institutional settings Regulated labour markets: Mitigation of negative effects of crisis (at the beginning) Strenght of EULFS data: potential for three-level design (individuals, time, countries) Limitation of EULFS data: limited data at individual level in past, no micro-dynamics 29

30 Thank you for your attention! 3

31 5.3. Macro-level full results: Non-employment Men Women Source: EULFS + MZ, -; own calculations. Remark: + p <.1, * p <.5, ** p <.1, *** p <.1 EPL regular (1.33) (.81) (.86) (1.43) (.95) (.56) EPL temporary (-1.6) (-.82) (-.74) (-.65) (-.87) (-.96) EPL regular high * EPL temporary (-.63) (-1.2) (-.5) (-.39) (-.99) (-.56) CBC (-.85) (-.72) (-.9) (-.97) (-.73) (-1.11) ALMP *.13.9 (.92) (1.52) (.99) (1.79) (1.49) (.96) GDP growth (-1.25) (-1.1) (-1.2) (-1.6) (-1.15) (-1.9) Youth cohort size (.18) (-.35) (-.56) (.7) (.24) (-.1) Economic globalisation (1.34) (1.1) (1.26) (1.4) (1.4) (1.39) Country FE yes yes yes yes yes yes Period FE yes yes yes yes yes yes Macro-controls yes yes yes yes yes yes 31

32 5.3. Macro-level full results: Temporary employment Men Women EPL regular ** (.93) (.3) (-.28) (.59) (1.38) (2.31) EPL temporary -.4*** -.4*** -.3*** -.4*** -.4*** -.3*** (-2.92) (-4.7) (-4.64) (-2.7) (-5.3) (-4.68) EPL regular high * EPL temporary (-.67) (.89) (-.17) (-.93) (-.6) (-.63) CBC -.*** -.*** -.*** -.*** -.* -.** (-2.85) (-2.82) (-3.2) (-2.9) (-1.74) (-2.24) ALMP * -.5** *. (-.87) (-1.9) (-2.25) (-1.41) (-1.81) (.13) GDP growth (.65) (.2) (.38) (.86) (-.6) (.31) Youth cohort size (1.25) (-.95) (-.81) (1.) (.2) (-.1) Economic -.1** * globalisation (-2.33) (-1.12) (-.93) (-1.14) (-.22) (1.8) Country FE yes yes yes yes yes yes Period FE yes yes yes yes yes yes Macro-controls yes yes yes yes yes yes Source: EULFS + MZ, -; own calculations. Remark: + p <.1, * p <.5, ** p <.1, *** p <.1 32

33 5.4. Overview: Results versus Theory EPL regular (e.g. increasing restrictions on firing of permanent workers) EXCLUSION Youth non-employment (Results: pos. insign.) lower hiring rates (dominates) lower firing rates FLEXIBILITY/INEQUALITY Youth temporary employment (Results: no/ ) increased incentives to use temporary contracts EPL temporary (e.g. lower regulations on use of temporary contracts)??? (Results: no/ ) job creation effect: substitution effect: trap effect: (Results: ) Increased opportunities to use temporary contracts Interaction term: Effects of EPL temporary particularly strong if EPL regular high (Results: no/+cee: yes) 33

34 6.2. Sensitivity analysis III: Interactions EPL*Crisis Non-employment: Men Women low educ med educ high educ low educ med educ high educ EPL regular * GDP drop ** -.25** (-1.44) (-1.45) (-1.17) (-1.33) (-2.3) (-2.18) EPL temporary * GDP drop (.56) (-.52) (-.33) (.23) (-1.39) (.6) Temporary employment: Men Women low educ med educ high educ low educ med educ high educ EPL regular * GDP drop -.37* -.28*** (-1.98) (-3.13) (-.74) (.79) (-.35) (-.55) EPL temporary * GDP drop -.26** -.15** ** (-2.14) (-2.45) (-1.17) (-2.42) (-.7) (-.82) 34

35 6.4. Sensitivity analysis III: Impact of the crisis Results for interactions between shock and institutions: Non-employment Men Women low educ med educ high educ low educ med educ high educ EPL regular ** -.25** (-1.44) (-1.45) (-1.17) (-1.33) (-2.3) (-2.18) EPL temporary (.56) (-.52) (-.33) (.23) (-1.39) (.6) dual system -1.96* -1.54* (-1.92) (-1.87) (-1.1) (-.56) (-1.42) (.44) Active labour market policy 1.31***.48.58*** 1.6*** (3.15) (1.35) (2.7) (3.59) (.98) (1.61) minimum wage * (-.29) (1.23) (.43) (-1.78) (1.48) (-1.27) Collective bargaining * coverage (1.29) (-.94) (1.59) (1.21) (-.69) (1.82) Remark: Models also control for size of shock and country dummies. 35

36 6.4. Sensitivity analysis III: Impact of the crisis Results for interactions between shock and institutions: Temporary employment Men Women low educ med educ high educ low educ med educ high educ EPL regular -.37* -.28*** (-1.98) (-3.13) (-.74) (.79) (-.35) (-.55) EPL temporary -.26** -.15** ** (-2.14) (-2.45) (-1.17) (-2.42) (-.7) (-.82) dual system ** (.55) (.25) (-.32) (2.41) (1.25) (1.22) ALMP ** ** -.16 (.76) (.81) (2.32) (.39) (-2.64) (-1.21) minimum wage *.25 (-.22) (.39) (-1.5) (-.6) (1.75) (.98) Collective bargaining ** -. -.** -.*** Coverage (-.99) (-1.47) (2.7) (-.18) (-2.27) (-2.95) Remark: Models also control for size of shock and country dummies. 36

37 6.4. Sensitivity analysis IV: Stepwise regression Effect of EPL on non-employment Men Women EPL regular Bivariat -.5*** -.4** -.4** -.8*** -.7*** -.5*** + Country FE Period FE Macro controls EPL temporary Bivariat -.4***....4***.2 + Country FE -.3** * Period FE -.4** Macro controls Source: EULFS + MZ, -; own calculations. Remark: + p <.1, * p <.5, ** p <.1, *** p <.1

38 6.4. Sensitivity analysis IV: Stepwise regression Effect of EPL on temporary employment Men Women EPL regular Bivariat.9***.1***.8***.9***.1***.8*** + Country FE.7**.3.1.6*.5**.3 + Period FE.9***.4*.2.9***.6***.4* + Macro controls ** EPL temporary Bivariat.3***.3***.2***.2**.3***.2*** + Country FE -.4*** -.3*** -.3*** -.4*** -.5*** -.3*** + Period FE -.2** -.3*** -.3*** -.2* -.4*** -.3*** + Macro controls -.4*** -.4*** -.3*** -.4*** -.4*** -.3*** Source: EULFS + MZ, -; own calculations. Remark: + p <.1, * p <.5, ** p <.1, *** p <.1

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