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