Dualism: Finance and the Great Recession                                           Tito Boeri                      Univers...
Outline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labor Market3    Empirical Evidence on Dualism...
The Nature of Reforms Increasing FlexibilityOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual La...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsIn the last 20 years labor market flexibility ...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsIn the last 20 years labor market flexibility ...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsIn the last 20 years labor market flexibility ...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsIn the last 20 years labor market flexibility ...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsTwo-tier and Marginal ReformsInstitutional re...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsTwo-tier and Marginal ReformsInstitutional re...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsTwo-tier and Marginal ReformsInstitutional re...
The Nature of Reforms Increasing Flexibility   Theory and Facts about ReformsThe Taxonomy                                 ...
The Nature of Reforms Increasing Flexibility   Some EvidenceTracking Reforms in EuropeA snapshot from Fondazione Debenedet...
The Nature of Reforms Increasing Flexibility   Some EvidenceTracking Reforms in EuropeA snapshot from Fondazione Debenedet...
The Nature of Reforms Increasing Flexibility   Some EvidenceEPL reforms     Incremental reforms: involve variation of the ...
The Nature of Reforms Increasing Flexibility   Some EvidenceEPL reforms     Incremental reforms: involve variation of the ...
The Nature of Reforms Increasing Flexibility   Some EvidenceEPL reforms     Incremental reforms: involve variation of the ...
The Nature of Reforms Increasing Flexibility   Some EvidenceEPL reforms     Incremental reforms: involve variation of the ...
The Nature of Reforms Increasing Flexibility   Some EvidenceEPL reforms     Incremental reforms: involve variation of the ...
The Nature of Reforms Increasing Flexibility   Some EvidenceExamplesExamples of Two-Tier reforms:      The battery of refo...
The Nature of Reforms Increasing Flexibility   Some EvidenceExamplesExamples of Two-Tier reforms:      The battery of refo...
The Nature of Reforms Increasing Flexibility   Some EvidenceExamplesExamples of Two-Tier reforms:      The battery of refo...
Framing a Dual Labor MarketOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labor Market3    Em...
Framing a Dual Labor MarketA model: qualitative descriptionExtension of standard equilibrium job search model. It takes ti...
Framing a Dual Labor MarketThe Long-run Effects of Two-tier ReformsA two-tier reform of employment protection reduces firin...
Framing a Dual Labor MarketThe Long-run Effects of Two-tier ReformsA two-tier reform of employment protection reduces firin...
Framing a Dual Labor MarketThe Long-run Effects of Two-tier ReformsA two-tier reform of employment protection reduces firin...
Framing a Dual Labor MarketEffects of the AsymmetryMoreover, the larger the asymmetry created by the reform betweenfixed-te...
Framing a Dual Labor MarketEffects of the AsymmetryMoreover, the larger the asymmetry created by the reform betweenfixed-te...
Framing a Dual Labor MarketEffects of the AsymmetryMoreover, the larger the asymmetry created by the reform betweenfixed-te...
Empirical Evidence on DualismOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labor Market3    ...
Empirical Evidence on DualismEffect of stricter EPL on dualism?                   ρ = 0.81                                ...
Empirical Evidence on DualismDualism in the European Union                                       Wage premium for         ...
Empirical Evidence on DualismDualism and the new Youth Under-employment T. Boeri (Università Bocconi)          Reforms and...
What happens during Recessions and UpturnsOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labo...
What happens during Recessions and UpturnsDualism over the Cycle      Increase in volatility of employment and unemploymen...
What happens during Recessions and UpturnsDualism over the Cycle      Increase in volatility of employment and unemploymen...
What happens during Recessions and UpturnsDualism over the Cycle      Increase in volatility of employment and unemploymen...
What happens during Recessions and UpturnsThe Honeymoon EffectExample of two-tier reforms of Epl (Boeri and Garibaldi, 200...
What happens during Recessions and UpturnsPre-Reform EPL Strictness and Post-ReformTemporary Employment                   ...
What happens during Recessions and UpturnsDuring DownturnsJob destruction concentrated on fixed-term contracts. Other worke...
The Financial Crisis and DualismOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labor Market3 ...
The Financial Crisis and DualismUS more responsive than reformed Europe T. Boeri (Università Bocconi)          Reforms and...
The Financial Crisis and DualismWithin EU heterogeneity also conditioning on Output.Not only Dualism                9,5   ...
The Financial Crisis and DualismWhy? Nature (financial) of the Crisis?      Not enough research on the links between financi...
The Financial Crisis and DualismWhy? Nature (financial) of the Crisis?      Not enough research on the links between financi...
The Financial Crisis and DualismWhy? Nature (financial) of the Crisis?      Not enough research on the links between financi...
The Financial Crisis and DualismWhy? Nature (financial) of the Crisis?      Not enough research on the links between financi...
The Financial Crisis and DualismWhy? Nature (financial) of the Crisis?      Not enough research on the links between financi...
The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect      Financial deepening reduces ch...
The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect      Financial deepening reduces ch...
The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect      Financial deepening reduces ch...
The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect      Financial deepening reduces ch...
The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect      Financial deepening reduces ch...
The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect      Financial deepening reduces ch...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect      Bulk of Job Creation rel...
The Financial Crisis and DualismThe JD Effect: High-leverage and Dualism as anightmare                     Elasticity of E...
The Financial Crisis and DualismThe JD-JR Effect: Mobility, Mortagages and Dualism               Probability of Moving for...
The Legacy of the Great RecessionOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labor Market3...
The Legacy of the Great RecessionAll new Hires are TemporaryPercentage decrease (increase) of the stock of employees durin...
The Legacy of the Great RecessionDualism: Underinvestment in Human CapitalMuch less training is offered to fixed-term worke...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at t...
The Legacy of the Great RecessionSummarizing     Huge Job Losses when High Leverage is accompanied with low     EPL or lar...
The Legacy of the Great RecessionSummarizing     Huge Job Losses when High Leverage is accompanied with low     EPL or lar...
The Legacy of the Great RecessionSummarizing     Huge Job Losses when High Leverage is accompanied with low     EPL or lar...
An Exit Strategy from DualismOutline1    The Nature of Reforms Increasing Flexibility2    Framing a Dual Labor Market3    ...
An Exit Strategy from Dualism   Why reforming nowDualism during and after FC      More volatility of employment      Autom...
An Exit Strategy from Dualism   Why reforming nowDualism during and after FC      More volatility of employment      Autom...
An Exit Strategy from Dualism   Why reforming nowDualism during and after FC      More volatility of employment      Autom...
An Exit Strategy from Dualism   Why reforming nowDualism during and after FC      More volatility of employment      Autom...
An Exit Strategy from Dualism   Why reforming nowDualism during and after FC      More volatility of employment      Autom...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from Finance!      Access to finance reduced unnecces...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from Finance!      Access to finance reduced unnecces...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from Finance!      Access to finance reduced unnecces...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from Finance!      Access to finance reduced unnecces...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from (Contributory) SocialInsurance!      Strenghten...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from (Contributory) SocialInsurance!      Strenghten...
An Exit Strategy from Dualism   Wrong responsesWe do not want an Exit from (Contributory) SocialInsurance!      Strenghten...
An Exit Strategy from Dualism   Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also ...
An Exit Strategy from Dualism   Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also ...
An Exit Strategy from Dualism   Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also ...
An Exit Strategy from Dualism   Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also ...
An Exit Strategy from Dualism   Contratto UnicoContrato Unico, Contratto Unico di Inserimento,Contrat UniqueProposals deve...
An Exit Strategy from Dualism   Contratto UnicoIl Contratto Unico di InserimentoItalian draft bill differentiates entry th...
An Exit Strategy from Dualism   Contratto UnicoIl Contratto Unico di InserimentoItalian draft bill differentiates entry th...
An Exit Strategy from Dualism   Contratto UnicoIl Contratto Unico di InserimentoItalian draft bill differentiates entry th...
An Exit Strategy from Dualism   Contratto UnicoComplementarity with other ReformsReforms of collective bargaining increasi...
An Exit Strategy from Dualism   Contratto UnicoSome Simulationsexample of Italy. Pensions for Temporary and Permanent Work...
An Exit Strategy from Dualism   Contratto UnicoPension reforms make Reforms of Labor Contractseven more necessaryDualism i...
An Exit Strategy from Dualism   Contratto UnicoPension reforms make Reforms of Labor Contractseven more necessaryDualism i...
An Exit Strategy from Dualism   Contratto UnicoPension reforms make Reforms of Labor Contractseven more necessaryDualism i...
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El dualismo: Finanzas y la Gran Recesión

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Ciclo de Conferencias: Reacting to the crisis: the new regulatory environment. En colaboración con el Instituto de Empresa.
Tito Boeri
Università Bocconi. Milán. Italia.
Madrid, 2 de febrero de 2011

Published in: Economy & Finance, Technology
  • interesante presentacion sobre finanzas, me fue de mucha utilidad en mis estudios, tambien comparto con ustedes la noticia sobre Emilio Botin http://www.lavanguardia.com/economia/noticias/20100623/53951567130/emilio-botin-se-mantiene-como-el-empresario-mas-influyente-de-espana-amancio-ortega-jose-manuel-entr.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+lavanguardia/economia+%28Seccion+LV.com+-+Econom%C3%ADa%29
    saludos.
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El dualismo: Finanzas y la Gran Recesión

  1. 1. Dualism: Finance and the Great Recession Tito Boeri Università Bocconi and Fondazione Rodolfo Debenedetti February, 2 2011, MadridT. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 1 / 46
  2. 2. Outline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 2 / 46
  3. 3. The Nature of Reforms Increasing FlexibilityOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 3 / 46
  4. 4. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsIn the last 20 years labor market flexibility has been at the centre of thepolicy debate. A lot of press coverage. It also attracted considerableinterest by researchers, either economists or sociologists (a bit alsopolitical scientists). In this debate the status quo is typically comparedwith a labor market in which dismissals are less costly for all workers.Surveys eliciting preferences over flexible vs. rigid labor marketsindicate that youngsters are more favorable to flexibility than olderworkersHowever: Reforms actually implemented in most OECD countries rarely increase or reduce employment protection for everybody as envisaged by the public debate, by many researchers and by the public opinion surveys while they create long-lasting asymmetries between different categories of workers Effects of these asymmetric or multi-tier reforms are much different and have yet to be fully understood T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 4 / 46
  5. 5. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsIn the last 20 years labor market flexibility has been at the centre of thepolicy debate. A lot of press coverage. It also attracted considerableinterest by researchers, either economists or sociologists (a bit alsopolitical scientists). In this debate the status quo is typically comparedwith a labor market in which dismissals are less costly for all workers.Surveys eliciting preferences over flexible vs. rigid labor marketsindicate that youngsters are more favorable to flexibility than olderworkersHowever: Reforms actually implemented in most OECD countries rarely increase or reduce employment protection for everybody as envisaged by the public debate, by many researchers and by the public opinion surveys while they create long-lasting asymmetries between different categories of workers Effects of these asymmetric or multi-tier reforms are much different and have yet to be fully understood T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 4 / 46
  6. 6. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsIn the last 20 years labor market flexibility has been at the centre of thepolicy debate. A lot of press coverage. It also attracted considerableinterest by researchers, either economists or sociologists (a bit alsopolitical scientists). In this debate the status quo is typically comparedwith a labor market in which dismissals are less costly for all workers.Surveys eliciting preferences over flexible vs. rigid labor marketsindicate that youngsters are more favorable to flexibility than olderworkersHowever: Reforms actually implemented in most OECD countries rarely increase or reduce employment protection for everybody as envisaged by the public debate, by many researchers and by the public opinion surveys while they create long-lasting asymmetries between different categories of workers Effects of these asymmetric or multi-tier reforms are much different and have yet to be fully understood T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 4 / 46
  7. 7. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsIn the last 20 years labor market flexibility has been at the centre of thepolicy debate. A lot of press coverage. It also attracted considerableinterest by researchers, either economists or sociologists (a bit alsopolitical scientists). In this debate the status quo is typically comparedwith a labor market in which dismissals are less costly for all workers.Surveys eliciting preferences over flexible vs. rigid labor marketsindicate that youngsters are more favorable to flexibility than olderworkersHowever: Reforms actually implemented in most OECD countries rarely increase or reduce employment protection for everybody as envisaged by the public debate, by many researchers and by the public opinion surveys while they create long-lasting asymmetries between different categories of workers Effects of these asymmetric or multi-tier reforms are much different and have yet to be fully understood T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 4 / 46
  8. 8. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsTwo-tier and Marginal ReformsInstitutional reform: change in the design of an institution Two-tier (vs. complete) reform: focus on the scope/coverage; the reform is confined to a subset of the potentially eligibile population (alternatively its complete phasing in involves a very long transitional period) Incremental (vs. discrete) reform: focus on the size; the reform involves a small change in the overall institutional level-indicator Structural reforms: either complete and discrete reforms T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 5 / 46
  9. 9. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsTwo-tier and Marginal ReformsInstitutional reform: change in the design of an institution Two-tier (vs. complete) reform: focus on the scope/coverage; the reform is confined to a subset of the potentially eligibile population (alternatively its complete phasing in involves a very long transitional period) Incremental (vs. discrete) reform: focus on the size; the reform involves a small change in the overall institutional level-indicator Structural reforms: either complete and discrete reforms T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 5 / 46
  10. 10. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsTwo-tier and Marginal ReformsInstitutional reform: change in the design of an institution Two-tier (vs. complete) reform: focus on the scope/coverage; the reform is confined to a subset of the potentially eligibile population (alternatively its complete phasing in involves a very long transitional period) Incremental (vs. discrete) reform: focus on the size; the reform involves a small change in the overall institutional level-indicator Structural reforms: either complete and discrete reforms T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 5 / 46
  11. 11. The Nature of Reforms Increasing Flexibility Theory and Facts about ReformsThe Taxonomy Discrete Structural Two-tier Size Incremental Incremental Two-tier Complete Scope T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 6 / 46
  12. 12. The Nature of Reforms Increasing Flexibility Some EvidenceTracking Reforms in EuropeA snapshot from Fondazione Debenedetti database (1): Spain - EPL database T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 7 / 46
  13. 13. The Nature of Reforms Increasing Flexibility Some EvidenceTracking Reforms in EuropeA snapshot from Fondazione Debenedetti database (2): Spain - EPL database T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 8 / 46
  14. 14. The Nature of Reforms Increasing Flexibility Some EvidenceEPL reforms Incremental reforms: involve variation of the relevant OECD indicator of less than 10% of the average period cross-country standard deviation in the level of the institution Two-tier reforms: less than 50% of the potentially eligible population involved A trade-off between Size and Scope of Reforms? as a percentage of the total nr of EPL reforms Discrete 8.5% 3.5% Size Incremental 43.3% 44.7% Two-tier Complete Scope T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 9 / 46
  15. 15. The Nature of Reforms Increasing Flexibility Some EvidenceEPL reforms Incremental reforms: involve variation of the relevant OECD indicator of less than 10% of the average period cross-country standard deviation in the level of the institution Two-tier reforms: less than 50% of the potentially eligible population involved A trade-off between Size and Scope of Reforms? as a percentage of the total nr of EPL reforms Discrete 8.5% 3.5% Size Incremental 43.3% 44.7% Two-tier Complete Scope T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 9 / 46
  16. 16. The Nature of Reforms Increasing Flexibility Some EvidenceEPL reforms Incremental reforms: involve variation of the relevant OECD indicator of less than 10% of the average period cross-country standard deviation in the level of the institution Two-tier reforms: less than 50% of the potentially eligible population involved A trade-off between Size and Scope of Reforms? as a percentage of the total nr of EPL reforms Discrete 8.5% 3.5% Size Incremental 43.3% 44.7% Two-tier Complete Scope T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 9 / 46
  17. 17. The Nature of Reforms Increasing Flexibility Some EvidenceEPL reforms Incremental reforms: involve variation of the relevant OECD indicator of less than 10% of the average period cross-country standard deviation in the level of the institution Two-tier reforms: less than 50% of the potentially eligible population involved A trade-off between Size and Scope of Reforms? as a percentage of the total nr of EPL reforms Discrete 8.5% 3.5% Size Incremental 43.3% 44.7% Two-tier Complete Scope T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 9 / 46
  18. 18. The Nature of Reforms Increasing Flexibility Some EvidenceEPL reforms Incremental reforms: involve variation of the relevant OECD indicator of less than 10% of the average period cross-country standard deviation in the level of the institution Two-tier reforms: less than 50% of the potentially eligible population involved A trade-off between Size and Scope of Reforms? as a percentage of the total nr of EPL reforms Discrete 8.5% 3.5% Size Incremental 43.3% 44.7% Two-tier Complete Scope T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 9 / 46
  19. 19. The Nature of Reforms Increasing Flexibility Some EvidenceExamplesExamples of Two-Tier reforms: The battery of reforms of EPL carried out in Italy in the 1997-2003 period expanded the scope of fixed term contracts, introduced Temporary Work Agency, increased the potential duration of fixed-term contracts and introduced new types of atypical contracts leaving regulations on the dismissals of workers with open-ended contracts unchanged. The 1989 reform of the British UB system reduced replacement rates for the short-term claimants, by increasing the length of the minimum waiting period required for eligibility to benefits for this category of workers only. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 10 / 46
  20. 20. The Nature of Reforms Increasing Flexibility Some EvidenceExamplesExamples of Two-Tier reforms: The battery of reforms of EPL carried out in Italy in the 1997-2003 period expanded the scope of fixed term contracts, introduced Temporary Work Agency, increased the potential duration of fixed-term contracts and introduced new types of atypical contracts leaving regulations on the dismissals of workers with open-ended contracts unchanged. The 1989 reform of the British UB system reduced replacement rates for the short-term claimants, by increasing the length of the minimum waiting period required for eligibility to benefits for this category of workers only. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 10 / 46
  21. 21. The Nature of Reforms Increasing Flexibility Some EvidenceExamplesExamples of Two-Tier reforms: The battery of reforms of EPL carried out in Italy in the 1997-2003 period expanded the scope of fixed term contracts, introduced Temporary Work Agency, increased the potential duration of fixed-term contracts and introduced new types of atypical contracts leaving regulations on the dismissals of workers with open-ended contracts unchanged. The 1989 reform of the British UB system reduced replacement rates for the short-term claimants, by increasing the length of the minimum waiting period required for eligibility to benefits for this category of workers only. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 10 / 46
  22. 22. Framing a Dual Labor MarketOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 11 / 46
  23. 23. Framing a Dual Labor MarketA model: qualitative descriptionExtension of standard equilibrium job search model. It takes time tocreate jobs (matching of workers and vacancies). Jobs are destroyedwhen their productivity falls below a given threshold level.Unemployment is an equilibrium phenomenon. Job creation anddestruction margins affected by employment protection either directlyand indirectly, that is, via their effects on wages. Dualism betweenentry jobs (fixed duration) and continuing jobs (when entry jobs areconverted into jobs lasting until productivity gets too low). Entry jobsare destroyed more frequently than continuing jobs (reservationproductivity is higher). They are also paid less other things beingequal. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 12 / 46
  24. 24. Framing a Dual Labor MarketThe Long-run Effects of Two-tier ReformsA two-tier reform of employment protection reduces firing taxes only forentry jobs. This: increases both hiring and separations on entry (fixed-term) jobs makes it more difficult to convert fixed-term into permanent contracts increases wage differentials between entry (fixed-term) and continuing jobs.Notice that the effects on separations, conversion rates of fixed-terminto permanent contracts and on wage differentials across types ofcontracts are not present when reforms are complete. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 13 / 46
  25. 25. Framing a Dual Labor MarketThe Long-run Effects of Two-tier ReformsA two-tier reform of employment protection reduces firing taxes only forentry jobs. This: increases both hiring and separations on entry (fixed-term) jobs makes it more difficult to convert fixed-term into permanent contracts increases wage differentials between entry (fixed-term) and continuing jobs.Notice that the effects on separations, conversion rates of fixed-terminto permanent contracts and on wage differentials across types ofcontracts are not present when reforms are complete. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 13 / 46
  26. 26. Framing a Dual Labor MarketThe Long-run Effects of Two-tier ReformsA two-tier reform of employment protection reduces firing taxes only forentry jobs. This: increases both hiring and separations on entry (fixed-term) jobs makes it more difficult to convert fixed-term into permanent contracts increases wage differentials between entry (fixed-term) and continuing jobs.Notice that the effects on separations, conversion rates of fixed-terminto permanent contracts and on wage differentials across types ofcontracts are not present when reforms are complete. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 13 / 46
  27. 27. Framing a Dual Labor MarketEffects of the AsymmetryMoreover, the larger the asymmetry created by the reform betweenfixed-term and permanent contracts: the larger the share of employment in fixed-term contracts the lower the probability of converting fixed-term into permanent contracts the larger the wage differentials between entry (fixed-term) and continuing jobs. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 14 / 46
  28. 28. Framing a Dual Labor MarketEffects of the AsymmetryMoreover, the larger the asymmetry created by the reform betweenfixed-term and permanent contracts: the larger the share of employment in fixed-term contracts the lower the probability of converting fixed-term into permanent contracts the larger the wage differentials between entry (fixed-term) and continuing jobs. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 14 / 46
  29. 29. Framing a Dual Labor MarketEffects of the AsymmetryMoreover, the larger the asymmetry created by the reform betweenfixed-term and permanent contracts: the larger the share of employment in fixed-term contracts the lower the probability of converting fixed-term into permanent contracts the larger the wage differentials between entry (fixed-term) and continuing jobs. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 14 / 46
  30. 30. Empirical Evidence on DualismOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 15 / 46
  31. 31. Empirical Evidence on DualismEffect of stricter EPL on dualism? ρ = 0.81 ρ = −0.72 Strictness of EPL for Permanent Strictness of EPL for Permanent Contracts and Share of Temporary Contracts and Transition Probability Contracts in Total (Dependent) from Temporary to Permanent Contracts Employment T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 16 / 46
  32. 32. Empirical Evidence on DualismDualism in the European Union Wage premium for Yearly Probability of Transitioning permanent contract from a Temporary to a Permanent Contract Austria 20.1 47.4 Belgium 13.9 40.4 Denmark 17.7 Finland 19.0 22.7 France 28.9 13.6 Germany 26.6 Greece 20.2 31.3 Ireland 17.8 46.3 Italy 24.1 31.2 Netherlands 35.4 Portugal 15.8 12.1 Spain 16.9 28.3 Sweden 44.7 United Kingdom 6.5 45.7Source: European Community Household Panel and Europen Union Survey of Income and Living Conditions. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 17 / 46
  33. 33. Empirical Evidence on DualismDualism and the new Youth Under-employment T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 18 / 46
  34. 34. What happens during Recessions and UpturnsOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 19 / 46
  35. 35. What happens during Recessions and UpturnsDualism over the Cycle Increase in volatility of employment and unemployment. Decline in labor productivity Temporary job creation (honeymoon) effect during expansions. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 20 / 46
  36. 36. What happens during Recessions and UpturnsDualism over the Cycle Increase in volatility of employment and unemployment. Decline in labor productivity Temporary job creation (honeymoon) effect during expansions. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 20 / 46
  37. 37. What happens during Recessions and UpturnsDualism over the Cycle Increase in volatility of employment and unemployment. Decline in labor productivity Temporary job creation (honeymoon) effect during expansions. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 20 / 46
  38. 38. What happens during Recessions and UpturnsThe Honeymoon EffectExample of two-tier reforms of Epl (Boeri and Garibaldi, 2007) Flexi‐land     (bad times)   (good times)  A  B  Employment  T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 21 / 46
  39. 39. What happens during Recessions and UpturnsPre-Reform EPL Strictness and Post-ReformTemporary Employment Temporary Contribution of Time EPL strictness EPL Strictness Emp. Growth Temporary Jobs Country Period (Regular Index) (Temporary Empl.) ∆ETt (000) ∆ETt/E0 Belgium 1987-1996 1.68 4.63 22.7 0.66 1997-2005 1.71 2.63 135.3 3.54 ∆ 0.03 -2.00 112.6 2.89 Italy 1987-1997 1.77 5.38 402.9 0.02 1998-2005 1.77 2.82 823.2 4.11 ∆ 0 -2.56 420.3 4.09 The Netherlands 1987-1995 3.08 2.38 340.1 5.79 1996-2005 3.06 1.45 288.8 3.80 ∆ -0.02 -0.93 -51.3 -2 Portugal 1987-1996 4.56 3.34 -168.9 -4.10 1997-2005 4.29 2.94 431.8 10.09 ∆ -0.27 -0.40 600.6 14.19 Spain1 1981-1984 3.83 - 0 0 1985-1995 3.67 3.66 3377.1 28.5 ∆ -0.16 - 3377.1 28.5 Sweden 1987-1996 2.88 3.28 -138.9 -3.22 1997-2005 2.86 1.63 189.2 4.82 ∆ -0.02 -1.65 328.1 8.04 1 For Spain, 1981-1984, the EPL index is the overall index, as in Nickell (2006) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 22 / 46
  40. 40. What happens during Recessions and UpturnsDuring DownturnsJob destruction concentrated on fixed-term contracts. Other workersare largely insulated from the adjustment. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 23 / 46
  41. 41. The Financial Crisis and DualismOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 24 / 46
  42. 42. The Financial Crisis and DualismUS more responsive than reformed Europe T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 25 / 46
  43. 43. The Financial Crisis and DualismWithin EU heterogeneity also conditioning on Output.Not only Dualism 9,5 8,5 7,5 6,5 5,5 4,5 3,5 2,5 1,5 0,5 -0,5 U rate (Percentage Point Change) GDP (Percent, Absolute Value) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 26 / 46
  44. 44. The Financial Crisis and DualismWhy? Nature (financial) of the Crisis? Not enough research on the links between financial crises and labour market dynamics More on (steady state) interactions between financial and labour frictions Rendon (2000), Belke and Fehn (2002), Arellano et al. (2010) easy access by firms to financial markets as a substitute for labour market flexibility Financial market liberalization complementary to labour market deregulation (Boeri, Galasso and Conde-Ruiz, 2006; Wasmer and Weil, 2003) Almost nothing on dualism and financial crises (Caggese and Cunat (2008) on hiring of temps and liquidity constraints; also Brunello (2005) on Japan) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 27 / 46
  45. 45. The Financial Crisis and DualismWhy? Nature (financial) of the Crisis? Not enough research on the links between financial crises and labour market dynamics More on (steady state) interactions between financial and labour frictions Rendon (2000), Belke and Fehn (2002), Arellano et al. (2010) easy access by firms to financial markets as a substitute for labour market flexibility Financial market liberalization complementary to labour market deregulation (Boeri, Galasso and Conde-Ruiz, 2006; Wasmer and Weil, 2003) Almost nothing on dualism and financial crises (Caggese and Cunat (2008) on hiring of temps and liquidity constraints; also Brunello (2005) on Japan) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 27 / 46
  46. 46. The Financial Crisis and DualismWhy? Nature (financial) of the Crisis? Not enough research on the links between financial crises and labour market dynamics More on (steady state) interactions between financial and labour frictions Rendon (2000), Belke and Fehn (2002), Arellano et al. (2010) easy access by firms to financial markets as a substitute for labour market flexibility Financial market liberalization complementary to labour market deregulation (Boeri, Galasso and Conde-Ruiz, 2006; Wasmer and Weil, 2003) Almost nothing on dualism and financial crises (Caggese and Cunat (2008) on hiring of temps and liquidity constraints; also Brunello (2005) on Japan) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 27 / 46
  47. 47. The Financial Crisis and DualismWhy? Nature (financial) of the Crisis? Not enough research on the links between financial crises and labour market dynamics More on (steady state) interactions between financial and labour frictions Rendon (2000), Belke and Fehn (2002), Arellano et al. (2010) easy access by firms to financial markets as a substitute for labour market flexibility Financial market liberalization complementary to labour market deregulation (Boeri, Galasso and Conde-Ruiz, 2006; Wasmer and Weil, 2003) Almost nothing on dualism and financial crises (Caggese and Cunat (2008) on hiring of temps and liquidity constraints; also Brunello (2005) on Japan) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 27 / 46
  48. 48. The Financial Crisis and DualismWhy? Nature (financial) of the Crisis? Not enough research on the links between financial crises and labour market dynamics More on (steady state) interactions between financial and labour frictions Rendon (2000), Belke and Fehn (2002), Arellano et al. (2010) easy access by firms to financial markets as a substitute for labour market flexibility Financial market liberalization complementary to labour market deregulation (Boeri, Galasso and Conde-Ruiz, 2006; Wasmer and Weil, 2003) Almost nothing on dualism and financial crises (Caggese and Cunat (2008) on hiring of temps and liquidity constraints; also Brunello (2005) on Japan) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 27 / 46
  49. 49. The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect Financial deepening reduces churning and employment volatility. Reduces demand fr EPL As firms do not adjust employment to transient shocks Yet, what happens when a highly leveraged firm experiences a financial shock and liquidity is suddenly pulled back? The lack of liquidity can force firms to liquidate projects as well as jobs, thus enhancing job destruction It is a labor demand effect. Stronger the lower the cost of employment reductions at the margin Dualism and high leverage is a dangerous mix T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 28 / 46
  50. 50. The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect Financial deepening reduces churning and employment volatility. Reduces demand fr EPL As firms do not adjust employment to transient shocks Yet, what happens when a highly leveraged firm experiences a financial shock and liquidity is suddenly pulled back? The lack of liquidity can force firms to liquidate projects as well as jobs, thus enhancing job destruction It is a labor demand effect. Stronger the lower the cost of employment reductions at the margin Dualism and high leverage is a dangerous mix T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 28 / 46
  51. 51. The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect Financial deepening reduces churning and employment volatility. Reduces demand fr EPL As firms do not adjust employment to transient shocks Yet, what happens when a highly leveraged firm experiences a financial shock and liquidity is suddenly pulled back? The lack of liquidity can force firms to liquidate projects as well as jobs, thus enhancing job destruction It is a labor demand effect. Stronger the lower the cost of employment reductions at the margin Dualism and high leverage is a dangerous mix T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 28 / 46
  52. 52. The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect Financial deepening reduces churning and employment volatility. Reduces demand fr EPL As firms do not adjust employment to transient shocks Yet, what happens when a highly leveraged firm experiences a financial shock and liquidity is suddenly pulled back? The lack of liquidity can force firms to liquidate projects as well as jobs, thus enhancing job destruction It is a labor demand effect. Stronger the lower the cost of employment reductions at the margin Dualism and high leverage is a dangerous mix T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 28 / 46
  53. 53. The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect Financial deepening reduces churning and employment volatility. Reduces demand fr EPL As firms do not adjust employment to transient shocks Yet, what happens when a highly leveraged firm experiences a financial shock and liquidity is suddenly pulled back? The lack of liquidity can force firms to liquidate projects as well as jobs, thus enhancing job destruction It is a labor demand effect. Stronger the lower the cost of employment reductions at the margin Dualism and high leverage is a dangerous mix T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 28 / 46
  54. 54. The Financial Crisis and DualismFinancial Crisis and Dualism: A Job Destruction Effect Financial deepening reduces churning and employment volatility. Reduces demand fr EPL As firms do not adjust employment to transient shocks Yet, what happens when a highly leveraged firm experiences a financial shock and liquidity is suddenly pulled back? The lack of liquidity can force firms to liquidate projects as well as jobs, thus enhancing job destruction It is a labor demand effect. Stronger the lower the cost of employment reductions at the margin Dualism and high leverage is a dangerous mix T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 28 / 46
  55. 55. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  56. 56. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  57. 57. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  58. 58. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  59. 59. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  60. 60. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  61. 61. The Financial Crisis and DualismFinancial (Housing) Crisis and Dualism: A JobCreation Effect Bulk of Job Creation related to startups more than to expansion of existing units. Startups are very risky: one out of ten survives 5 years after birth. Higher perception of risk drives resources away from startups. Less new projects. Just some temporary gap filling related to attrition. Also less spinoffs and quits to new projects: workers need financial markets and mortgages to finance new projects and mobility (real estate investment) During a financial crisis, real estate prices drop, workers face risk of negative equity and mobility is reduced This mobility effect of finance can increase unemployment at given vacancy rates Likely to be more serious when jobs are offered only in temporary contracts T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 29 / 46
  62. 62. The Financial Crisis and DualismThe JD Effect: High-leverage and Dualism as anightmare Elasticity of Employment to Output (1) (2) Leverage (Debt to Sales) -0.02** -0.01** FC Financial-related Recession 0.0943*** 0.1249*** EPL reg -0.0795*** -0.0802 share TEMP 0.011** Leverage*TEMP*FC 0.030** Leverage*lowEPL*FC 0.02***Including country and sector fixed effects. Source: IMF data T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 30 / 46
  63. 63. The Financial Crisis and DualismThe JD-JR Effect: Mobility, Mortagages and Dualism Probability of Moving for Job-Related Reasons (1) (2) Age -0.0259*** -0.0259*** (0.0004) (0.0004) Female -0.0003 0.0000 (0.0104) (0.0104) Education 0.1710*** 0.1710*** (0.0068) (0.0068) HH size -0.1810*** -0.1800*** (0.0043) (0.0043) Perm. Contr. 0.5350*** 0.552*** (0.0183) (0.0185) Crisis Dummy 0.0397 -0.0077 (0.0490) (0.0504) Mortgage*Crisis -0.3620*** -0.3600*** (0.0204) (0.0204) Constant -1.7090*** -1.6080*** (0.0428) (0.0453) Country FE yes yes Year FE no yes Obs. 1,038,982 1,038,982 Standard errors in parentheses. *** p<0.01, **p<0.05, * p<0.1Note: crisis dummy includes both recessions with financial crisis and house bustSource: ECHP 1994-2001, IMF for crisis dummy T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 31 / 46
  64. 64. The Legacy of the Great RecessionOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 32 / 46
  65. 65. The Legacy of the Great RecessionAll new Hires are TemporaryPercentage decrease (increase) of the stock of employees during(after) the crisis. Share of Temporary Workers Fixed-Term Job Losses as Fixed-Term New Jobs as over Total Employment % of Total Job Losses as % of Total New Jobs 2008Q3 during the crisis after the crisis EU 14.26% 34.19% 87.65% Greece 12.19% 11.92% 261.71% Spain 29.53% 76.94% 113.20% France 14.26% 12.81% 139.66% Italy 13.63% 54.30% 169.20%Note: recession period is defined following a peak-to-trough approach looking at total employment. For the EU, France and Italy,2008Q3-2010Q1; for Greece and Spain, 2008Q2-2010Q1Source: Eurostat T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 33 / 46
  66. 66. The Legacy of the Great RecessionDualism: Underinvestment in Human CapitalMuch less training is offered to fixed-term workers compared topermanent contracts. Source: ECHP T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 34 / 46
  67. 67. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  68. 68. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  69. 69. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  70. 70. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  71. 71. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  72. 72. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  73. 73. The Legacy of the Great RecessionLost Generations. Longer term EffectsEvidence of "‘scarring"’ effect of unemployment at the beginning of acareer Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities Mroz e Savage (2006): unemployment at 22 implies earning 30 per cent lower at 25. At age 30-32 below -2-3 per cent Kletzer and Fairlie (1999): wage losses over the lifetimes 8 per cent for men and 13 per cent for women Gregg and Tominie (2001): wage losses 13-21 per cent Arulampalam (2001): increase in risk of new job losses Bell and Blanchflower (2009) von Wachter (2009): health effect even 20 years after T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 35 / 46
  74. 74. The Legacy of the Great RecessionSummarizing Huge Job Losses when High Leverage is accompanied with low EPL or large share of Dual Workers Job Losses of Dual Workers very serious problem because of limited access to unemployment benefits Hiring currently almost only on short-time work with potential loss of human capital T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 36 / 46
  75. 75. The Legacy of the Great RecessionSummarizing Huge Job Losses when High Leverage is accompanied with low EPL or large share of Dual Workers Job Losses of Dual Workers very serious problem because of limited access to unemployment benefits Hiring currently almost only on short-time work with potential loss of human capital T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 36 / 46
  76. 76. The Legacy of the Great RecessionSummarizing Huge Job Losses when High Leverage is accompanied with low EPL or large share of Dual Workers Job Losses of Dual Workers very serious problem because of limited access to unemployment benefits Hiring currently almost only on short-time work with potential loss of human capital T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 36 / 46
  77. 77. An Exit Strategy from DualismOutline1 The Nature of Reforms Increasing Flexibility2 Framing a Dual Labor Market3 Empirical Evidence on Dualism4 What happens during Recessions and Upturns5 The Financial Crisis and Dualism6 The Legacy of the Great Recession7 An Exit Strategy from Dualism T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 37 / 46
  78. 78. An Exit Strategy from Dualism Why reforming nowDualism during and after FC More volatility of employment Automatic stabilizers do not operate efficiently Higher social costs of recessions Reduced Human Capital Investment after financial recessions: hiring on temporary contracts offering no on-the-job training, lower education wage premia, lower incentives to investment also in formal education A Lost Generation? Example of the cohorts entering the labour markets in Japan and Sweden after the financial crises of the 1990s T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 38 / 46
  79. 79. An Exit Strategy from Dualism Why reforming nowDualism during and after FC More volatility of employment Automatic stabilizers do not operate efficiently Higher social costs of recessions Reduced Human Capital Investment after financial recessions: hiring on temporary contracts offering no on-the-job training, lower education wage premia, lower incentives to investment also in formal education A Lost Generation? Example of the cohorts entering the labour markets in Japan and Sweden after the financial crises of the 1990s T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 38 / 46
  80. 80. An Exit Strategy from Dualism Why reforming nowDualism during and after FC More volatility of employment Automatic stabilizers do not operate efficiently Higher social costs of recessions Reduced Human Capital Investment after financial recessions: hiring on temporary contracts offering no on-the-job training, lower education wage premia, lower incentives to investment also in formal education A Lost Generation? Example of the cohorts entering the labour markets in Japan and Sweden after the financial crises of the 1990s T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 38 / 46
  81. 81. An Exit Strategy from Dualism Why reforming nowDualism during and after FC More volatility of employment Automatic stabilizers do not operate efficiently Higher social costs of recessions Reduced Human Capital Investment after financial recessions: hiring on temporary contracts offering no on-the-job training, lower education wage premia, lower incentives to investment also in formal education A Lost Generation? Example of the cohorts entering the labour markets in Japan and Sweden after the financial crises of the 1990s T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 38 / 46
  82. 82. An Exit Strategy from Dualism Why reforming nowDualism during and after FC More volatility of employment Automatic stabilizers do not operate efficiently Higher social costs of recessions Reduced Human Capital Investment after financial recessions: hiring on temporary contracts offering no on-the-job training, lower education wage premia, lower incentives to investment also in formal education A Lost Generation? Example of the cohorts entering the labour markets in Japan and Sweden after the financial crises of the 1990s T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 38 / 46
  83. 83. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from Finance! Access to finance reduced unneccessary layoffs in the US (secular fall of temporary layoffs) Caggese, Cunat (2008): Financially constrained firms have a larger proportion of fixed-term contracts (higher volatility of total employment) Reducing access to finance we cannot exit from dualism as liquidity constraints induce small firms to offer only temporary contracts Further example that expected financing constraints matter in hiring decisions T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 39 / 46
  84. 84. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from Finance! Access to finance reduced unneccessary layoffs in the US (secular fall of temporary layoffs) Caggese, Cunat (2008): Financially constrained firms have a larger proportion of fixed-term contracts (higher volatility of total employment) Reducing access to finance we cannot exit from dualism as liquidity constraints induce small firms to offer only temporary contracts Further example that expected financing constraints matter in hiring decisions T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 39 / 46
  85. 85. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from Finance! Access to finance reduced unneccessary layoffs in the US (secular fall of temporary layoffs) Caggese, Cunat (2008): Financially constrained firms have a larger proportion of fixed-term contracts (higher volatility of total employment) Reducing access to finance we cannot exit from dualism as liquidity constraints induce small firms to offer only temporary contracts Further example that expected financing constraints matter in hiring decisions T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 39 / 46
  86. 86. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from Finance! Access to finance reduced unneccessary layoffs in the US (secular fall of temporary layoffs) Caggese, Cunat (2008): Financially constrained firms have a larger proportion of fixed-term contracts (higher volatility of total employment) Reducing access to finance we cannot exit from dualism as liquidity constraints induce small firms to offer only temporary contracts Further example that expected financing constraints matter in hiring decisions T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 39 / 46
  87. 87. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from (Contributory) SocialInsurance! Strenghtening of contributory nature of social security is a key condition for sustainability under Ageing Populations and Migration to Welfare Policy Response of paying social transfers out of General Government revenues create huge moral hazard problems. Example of the ever increasing STW (Cassa Integrazione) in Italy Social Protection to temporary workers should be offered by addressing the Dualism induced by Two-tier Reforms, not by undoing Reforms of Social Security (UB, Pensions, etc.) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 40 / 46
  88. 88. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from (Contributory) SocialInsurance! Strenghtening of contributory nature of social security is a key condition for sustainability under Ageing Populations and Migration to Welfare Policy Response of paying social transfers out of General Government revenues create huge moral hazard problems. Example of the ever increasing STW (Cassa Integrazione) in Italy Social Protection to temporary workers should be offered by addressing the Dualism induced by Two-tier Reforms, not by undoing Reforms of Social Security (UB, Pensions, etc.) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 40 / 46
  89. 89. An Exit Strategy from Dualism Wrong responsesWe do not want an Exit from (Contributory) SocialInsurance! Strenghtening of contributory nature of social security is a key condition for sustainability under Ageing Populations and Migration to Welfare Policy Response of paying social transfers out of General Government revenues create huge moral hazard problems. Example of the ever increasing STW (Cassa Integrazione) in Italy Social Protection to temporary workers should be offered by addressing the Dualism induced by Two-tier Reforms, not by undoing Reforms of Social Security (UB, Pensions, etc.) T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 40 / 46
  90. 90. An Exit Strategy from Dualism Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also employmentcreation in the recovery after having experienced the negative side ofdualism. Better to go beyond dualism, working on employers’incentives. Need to balance two forces Let firms enjoy flexibility at entry. On the labour demand side, firms benefit from a labour market where experimentation is allowed Set a well defined path to stability for workers, through a long run entrance with an open-ended labour contract Flexibility is important in the entry phase. Problem of asymmetric information Tenure tracks to stable jobs T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 41 / 46
  91. 91. An Exit Strategy from Dualism Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also employmentcreation in the recovery after having experienced the negative side ofdualism. Better to go beyond dualism, working on employers’incentives. Need to balance two forces Let firms enjoy flexibility at entry. On the labour demand side, firms benefit from a labour market where experimentation is allowed Set a well defined path to stability for workers, through a long run entrance with an open-ended labour contract Flexibility is important in the entry phase. Problem of asymmetric information Tenure tracks to stable jobs T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 41 / 46
  92. 92. An Exit Strategy from Dualism Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also employmentcreation in the recovery after having experienced the negative side ofdualism. Better to go beyond dualism, working on employers’incentives. Need to balance two forces Let firms enjoy flexibility at entry. On the labour demand side, firms benefit from a labour market where experimentation is allowed Set a well defined path to stability for workers, through a long run entrance with an open-ended labour contract Flexibility is important in the entry phase. Problem of asymmetric information Tenure tracks to stable jobs T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 41 / 46
  93. 93. An Exit Strategy from Dualism Wrong responsesWe need Smart ReformsRemoving temporary contracts would mean reducing also employmentcreation in the recovery after having experienced the negative side ofdualism. Better to go beyond dualism, working on employers’incentives. Need to balance two forces Let firms enjoy flexibility at entry. On the labour demand side, firms benefit from a labour market where experimentation is allowed Set a well defined path to stability for workers, through a long run entrance with an open-ended labour contract Flexibility is important in the entry phase. Problem of asymmetric information Tenure tracks to stable jobs T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 41 / 46
  94. 94. An Exit Strategy from Dualism Contratto UnicoContrato Unico, Contratto Unico di Inserimento,Contrat UniqueProposals developed in Spain (Bentolila, Dolado and 100 academiceconomists), France (Blanchard-Tirole, Cahuc-Kramarz) and Italy(Boeri and Garibaldi): tenure track to stable jobs with protectionincreasing with tenure. Differences according to national regulations. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 42 / 46
  95. 95. An Exit Strategy from Dualism Contratto UnicoIl Contratto Unico di InserimentoItalian draft bill differentiates entry through experimentation fromgenuinely fixed term jobs. Open ended contract with two phases: Entry Phase (up to the third year): the worker has the right to severance payments proportional to tenure (independently of firm size): dismissal without just clause requires up to six months in severance payments (5 days of severance every month). Entry phase lasts three years Stability Phase (from third year onward): current legislation (for dismissal without just clause: reinstatement right in firms above 15 employees and six months severance in small firms) Fixed term contracts and de-facto dual workers (yet self employed in the books) only with higher salaries (top decile of the current distribution of wages for these contracs) and higher contributions to unemployment benefits T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 43 / 46
  96. 96. An Exit Strategy from Dualism Contratto UnicoIl Contratto Unico di InserimentoItalian draft bill differentiates entry through experimentation fromgenuinely fixed term jobs. Open ended contract with two phases: Entry Phase (up to the third year): the worker has the right to severance payments proportional to tenure (independently of firm size): dismissal without just clause requires up to six months in severance payments (5 days of severance every month). Entry phase lasts three years Stability Phase (from third year onward): current legislation (for dismissal without just clause: reinstatement right in firms above 15 employees and six months severance in small firms) Fixed term contracts and de-facto dual workers (yet self employed in the books) only with higher salaries (top decile of the current distribution of wages for these contracs) and higher contributions to unemployment benefits T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 43 / 46
  97. 97. An Exit Strategy from Dualism Contratto UnicoIl Contratto Unico di InserimentoItalian draft bill differentiates entry through experimentation fromgenuinely fixed term jobs. Open ended contract with two phases: Entry Phase (up to the third year): the worker has the right to severance payments proportional to tenure (independently of firm size): dismissal without just clause requires up to six months in severance payments (5 days of severance every month). Entry phase lasts three years Stability Phase (from third year onward): current legislation (for dismissal without just clause: reinstatement right in firms above 15 employees and six months severance in small firms) Fixed term contracts and de-facto dual workers (yet self employed in the books) only with higher salaries (top decile of the current distribution of wages for these contracs) and higher contributions to unemployment benefits T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 43 / 46
  98. 98. An Exit Strategy from Dualism Contratto UnicoComplementarity with other ReformsReforms of collective bargaining increasing the importance ofplant-level bargaining and productivity-related pay. Reward lessseniority and more productivity. The steeper is the wage tenure profile,the larger is the loss associated to an increase in mobility. Reforms ofPensions. Increase in Retirement Age as a way to reduce taxes onlabor. Increase in net wages at entry. Shift to a sustainable(contributory) system however increases the costs of temporaryemployment. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 44 / 46
  99. 99. An Exit Strategy from Dualism Contratto UnicoSome Simulationsexample of Italy. Pensions for Temporary and Permanent WorkersSource: Boeri and Galasso, 2010. T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 45 / 46
  100. 100. An Exit Strategy from Dualism Contratto UnicoPension reforms make Reforms of Labor Contractseven more necessaryDualism is a threat for future pensions since it increases gaps in contributory periods it reduces the probability of getting a stable job it lowers entry wages that are very important in determining pension benefits T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 46 / 46
  101. 101. An Exit Strategy from Dualism Contratto UnicoPension reforms make Reforms of Labor Contractseven more necessaryDualism is a threat for future pensions since it increases gaps in contributory periods it reduces the probability of getting a stable job it lowers entry wages that are very important in determining pension benefits T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 46 / 46
  102. 102. An Exit Strategy from Dualism Contratto UnicoPension reforms make Reforms of Labor Contractseven more necessaryDualism is a threat for future pensions since it increases gaps in contributory periods it reduces the probability of getting a stable job it lowers entry wages that are very important in determining pension benefits T. Boeri (Università Bocconi) Reforms and Labour Market Outcomes February, 2 2011 46 / 46

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