Comments by: Stéphane SAUSSIER ADIS, University Paris South ATOM, University Paris Sorbonne

1. Employment Protection Regulation and Labour Market PerformanceWorkshop: "Measuring Law and Institutions"Conseil d’Etat - December 14th, 2006 Comments by: Stéphane SAUSSIER ADIS, University Paris South ATOM, University Paris Sorbonne

2. Labour Market Performance: A contractual issue… • There exist a trade-off between rigidity and flexibility in labour contracts • A need for flexibility for firm to adapt to changing market conditions • But this flexibility does not favor • Incentives (ratchet effect) • Implication of workers • Incentives to develop human asset specificity, training, … • A need for rigidity for workers employment security • But this rigidity has a cost • Firms anticipate futur problems and do not hire • Move to more flexible labour contracts : temporary workers and duality of the labour market / insiders vs. outsiders.

3. Labour Market Performance: …But not only • This is a well know trade-off studied in contract theories but, • Institutions and laws matters! • They define a kind of lower and upper bounds of the trade-off • They define the rules of the game!

4. Employment Protection Laws as Rules of the game: WHAT ARE WE MEASURING? (1) • The rules vs. the way rules are applied • EPL depends crucially of 1/judicial practices and court interpretation of legislative and contractual rules 2/as well as the way economic actors perceive rules • What are the possible ways to take into account in constructed indicators the way rules are applied? And perceived? • Is it possible to stress differences between Civil Law and Common Law countries from this point of view? Is it relevant?

5. Employment Protection Laws as Rules of the game: WHAT ARE WE MEASURING? (2) • The rules vs. the way rules are applied • Two kinds of contracts: permanent vs. temporary workers • Two EPL but • For temporary employment, there is an uncertainty concerning the extend to which regulatory provisions might be enforced in practice! • At the same time, regulation on temporary agreement makes the difference in cross-country comparisons! This is the less reliable measure that drives the results. • How did you deal with that?

6. Employment Protection Laws as Rules of the game: WHAT DO WE HAVE TO MEASURE? (1) • EPL is only one possible instrument to set up a good institutional framework for contracting parties to found out a efficient flexible/rigid contract • A large set of other policy instruments exist • Active labour market policy • Passive/active administration of unemployment benefits • … • Those other instruments might be complements or substitutes • How to analyse the impact of one particular rule (e.g. EPL) on labour market performance in isolation without taking into account the whole picture? • How to take into account the « comprehensive » strategy of a country without a clear theory of institutional complementarities? (Brousseau-Raynaud 2006)

7. Employment Protection Laws as Rules of the game: What consequence for labour market performances? Results • You looked for differences of EPLs impact across demographic groups. • Why do not look for differences between sectors and activities? • Those who need workers to develop human specific assets, who need workers who have to be trained all over their careers might be impacted differently • Specific “private institutions” might exist at a sectoral level • Strict EPLs reduce Flows into unemployment and flows out of unemployment • Strict EPLs seem to increase Long term unemployment and unemployment rate • And so what? What can we conclude without a welfare analysis?

8. Conclusion Measuring law and institutions • What do we have to measure? • At what level? (Country vs. sectoral level …) • What are we measuring really? • What impacts at a micro level? • What impacts at a macro level?