Job Stability in Developing and Developed Countries: Evidence from Colombia and the United States

1. Job Stability in Developing and Developed Countries: Evidence from Colombia and the United States Article By: Julie Anderson Schaffner Danijel Obradovic and Scott Flax

2. Introduction to the Article • Colombia  Developing Country • United States  Developed Country • Schaffner provides evidence throughout the article which clams that jobs are less stabled in developing countries than in developed countries. • In developing countries productivity-enhancing and long-term employment relationships are more costly and difficult to implement which leads to higher rate of labor turnover • Schaffner’s hypothesis suggest that, although some employers in developing countries are successful in implementing productivity-enhancements involving long-term employment relationships are relatively high cost and the share of workers hired under long-lasting contacts is smaller in developing countries than in developed countries. • Lower usage of productivity-enhancing and long-term contracts is the reason why labor productivity (and GNP per capita) is lower in developing countries than in developed countries • Jobs in private-sector wage employment have shorter duration in urban Colombia than in the United States • Often US jobs have longer duration, which are less stabled than several European countries and Japan

3. Data and Descriptive Statistics Colombian data was derived from the Encuesta Nacional de Hogares (ENH) Colombian Departamento Administrativo Nacional de Estadistics (DANE) How long have you worked in this establishment or enterprise? United States data was derived from the Current Population Survey (CPS) To be comparable with Colombia, CPS was only based on individuals living in metropolitan areas with a population of at least 100,000 people

4. Data Guidelines • Focused on male ages between 15 and 59 private sector or nonagricultural wage employments • Excluded ages under 15  due to the lowest age that tenure data was available • Excluded ages above 59  legal retirement age for males in Colombia is 60 years old • Focused on males rather than females  changes in labor force participation rate had made it difficult in making job-length comparisons • Data focused on private sectors  models of employment contracts are most relevant in profit maximization • Data also focused on wage employment  meaning of job-tenure for self-employed workers and potential employment contracting problems

5. Descriptive Statistics • Table 1 describes job-tenure by providing descriptions of basic labor features • Colombian labor-force compared to the US labor-force shown to be: • younger • Less educated • Less likely to be in white-collar occupations • More likely to be unemployed • More likely to be self-employed • Colombian manufacturing workers are more likely to be employed in textile and food industries • Colombian service workers are more likely to be under the personal service sector

6. Cross-Country Differences in Completed Job-Tenure Distribution • Completed job-tenure distribution was based on measurements of allowing better assessment of cross-country differences in job-lengths • Current job-tenure distributions  are imperfect reflections of cross country differences in job-length, job-stability, and importance of long term jobs • Also current job-tenure distributions  are incomplete because they are represented by the population of workers whose jobs were still in progress and not by the population of workers whose jobs started at one time. • In some Colombian aggregated industries  employment may grow more rapidly tending to make current job-tenures look shorter due to a more rapid population growth, more rapid increase in labor force participation and higher immigration rates

7. Current job-tenure distributions may differ across different countries because as employment is growing more rapidly in that country, workers will tend to be found at lower-tenures 2. Median job-tenure distributions also may differ across different countries due to the length-biased sampling  tends to render the mean of current job-tenures higher than the mean of completed job-tenures Two Problems with Cross-Country Differences in Job-Lengths

8. Job - Retentions • Job-retention rates consist of tenures and age differences • As retention rates rise it is likely that tenures will also rise  because higher tenure workers make large investments in assets that are specific to the job • In one case in Colombia regulations on dismissing employees from the company caused not only job-tenures to rise but as well as the cost of dismissal to rise • Job-retention rates in the United States are more than one and a half times likely to retain their jobs than Colombians • In Colombia  lower job-retentions are likely to lead to lower tenures

9. Current Tenure Statistics for Male Private-Sector Wage Employees • Table 2 provides descriptive statistics based on job-tenure for males in the private-sector of wage employment based on the two years (1988 and 1987) • Data shows that job-tenures are shorter in Colombia than they are in the United States • Data also shows the percent of workers with years of tenures: • US has a higher percent of workers with 3 or more years of tenures • Colombia on the other hand has higher percent of workers with 2 or less years of tenures

10. Job Security Legislation Reform In Columbia as in the majority of Latin America job-security legislation made dismissing workers with high job tenures very costly and difficult. This legislation was effective for high tenured workers but was not so helpful for low tenured workers. Low tenured workers were being continually fired and replaced so that employers didn’t have to go through with paying severance packages and other incentives to high tenured workers.

11. Job Security Legislation Reform • During the late 1980’s Columbian job legislation underwent a major reform. • To achieve these goals economists planned on making firings less costly and less difficult thereby reducing the incentive to reduce to fire workers while they are still in their early tenure. • The one downside to this new legislation was that many of the workers at high tenure jobs still fell under the old legislation.

12. Job Security Legislation Reform Conclusion • Columbian job security legislation might have been somewhat counter productive. • This counter productivity can only explain a small part of the disparity between the U.S. and Columbia for the separation rates for low tenure workers.

13. Specialization and the Importance of Long-Term Jobs • The second possible explanation for lower occurrence of long term jobs in Columbia when compared to the U.S. would be that in general developing countries specialize in small scale production activities and less advanced technologies. • If developing countries are specialized in production activities that are easily learned and in which worker skill/quality means little to the production process then there will be lower training and screening costs and thus making long term contracts (that reduced turnover) is not beneficial to the employers.

14. Specialization and the Importance of Long-Term Jobs • To summarize the data presented in this section of the article basically Columbia is specialized to a greater extent in activities where long tenured jobs tend to be less important. • Even after taking into account the differences in production mix , jobs in Columbia tend to be of much shorter duration than to jobs in the United States.

15. Possible Sources of Higher Long- Term Employment Contracting Costs • Theoretically there are five sets of potential explanations for higher relative costs and lower incidence of longer term employment contracts in developing countries. • 1. The first explanation is that the high cost of long term contracts relative to the cost of short term or spot market contracts is an inevitable consequence of low levels of economic development. (Low low demand for labor/Low wage levels) • 2. Greater volatility in the lives of firms and workers increases the relative cost of efficient long term employment contracts in developing countries. • 3. Lower incidences of long term contracts may draw from more severe financial constraints on either the workers or employers in the developing countries. • 4. On the job investments in human capital that are make possible by long term contracts may be less appealing in developing countries because of the lack of quality and quantity of education. Thus on the job will be more expensive and time consuming. • 5. The final explanation is that cross country differences in long term contracting may self reinforcing. Basically saying that workers will frequently leave jobs to look for better ones.

16. Conclusion • Workers in Columbia have shorter tenure at their jobs than their counterparts in the United States • The overall lower occurrence of long lasting jobs in Columbia is not the result of counter productive job legislation, specialization in production activities for which there is a relatively low need for long term employment contracts. • The costs of long term employment are higher in developing countries like Columbia than in developed countries like the United States. • Future research need to be conducted to figure out why costs might be higher in these developing countries.