NDLI: A hysteresis model-based indicator for employment adjustment rigidity

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A hysteresis model-based indicator for employment adjustment rigidity

Content Provider	Springer Nature Link
Author	Mota, Paulo Ricardo Varejão, José Vasconcelos, Paulo B.
Copyright Year	2014
Abstract	The accurate measurement of employment adjustment rigidity is essential to assist labour market reforms that are currently viewed as a key to economic recovery of the Euro Zone peripheral countries. Usually, labour market rigidity is assessed through the researcher’s reading of the legislation or other similar measures. In this work we propose a new indicator for labour market rigidity computed from data on the adjustment of employment and hours per worker. We model employment dynamics with a linear play model of hysteresis, which is adequate in the presence of non-convex employment adjustment costs, and derive a switching regression model with a time-varying splitting factor estimated on monthly data for 15 OECD countries and 14 years (1995–2008). The numerical results provide an employment rigidity ranking of countries that is neither vulnerable to enforcement issues nor to subjective interpretations of the law. With this new and practical procedure, a single parameter summarizes different labour markets according to their readiness of employment adjustment. Moreover, it is easily computed and updated from publicly available data. Comparing the new proposed ranking with others, used as a benchmark for the rigidity of employment protection legislation, we find a positive and significant association between the common employment protection legislation indices and our employment adjustment indicator. The rank correlations are especially high with the OECD indicators. Yet, our findings indicate that the OECD rankings seem to overstate employment rigidity at the ranking top positions and understate it at the bottom.
Starting Page	547
Ending Page	569
Page Count	23
File Format	PDF
ISSN	03408744
Journal	Empirica
Volume Number	42
Issue Number	3
e-ISSN	15736911
Language	English
Publisher	Springer US
Publisher Date	2014-06-11
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Employment Rigidity Rankings Hysteresis European Integration International Economics Macroeconomics/Monetary Economics Econometrics Industrial Organization Public Finance & Economics
Content Type	Text
Resource Type	Article
Subject	Geography, Planning and Development Development Economics and Econometrics

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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