The interplay of the unemployment compensation system, fixed

Madrid, 27 de Octubre de 2010
Seminario en el Instituto de Estudios Fiscales
JOSÉ MARÍA ARRANZ Y CARLOS GARCÍA SERRANO (UNIVERSIDAD DE ALCALÁ) The interplay of the
unemployment compensation
system, fixed-term contracts
and rehirings
5.
4.
3.
2.
1.
Background
Dataset
Econometric specification
Results
Conclusions
The interplay of the unemployment
compensation system, fixed-term
contracts and rehirings
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z
z
Spanish case Æ two strands of research:
• HSIPRE: Cons (only recipients, no control group); Pros
(information on potential duration, level of benefits, types of
benefit). Cebrián et al. (1995,1996); Jenkins and GarcíaSerrano (2004); Arranz and Muro (2004,2007); Alba et al.
(2007).
• EPA: Cons (information on receipt only, no level, no
potential duration, no types of benefit); Pros (control
group). Alba (1999); Bover et al. (2002); Toharia (1998);
Cantó and Toharia (2003); Arranz et al. (2010).
One conclusion: recipients remain longer in unemployment
than non recipients, but the effect is in the short run, vanishing
in the medium run.
Previous study: “El sistema de protección por
desempleo y la salida del paro” (PEE, 2010)
Background
0
0 .1
0 .2
0 .3
0 .4
0 .5
0 .6
0 .7
0 .8
0 .9
1
0
1
2
3
4
5
7
8
9
P e r c e p t o r ( <1 a ñ o )
6
10
12
13
14
P e r c e p t o r ( 1-3 a ñ o s)
11
15
16
18
19
20
P e r c e p t o r ( >3 a ñ o s)
17
21
23
24
No p e r c e p t o r
22
25
26
27
28
Función de permanencia de los perceptores de
prestaciones y de los no perceptores, según duración del
empleo anterior. Episodios de empleo finalizados en 2004 y
2005. MCVL (2004-2007)
29
298
59
63
Perceptores
Prestación
contributiva
Prestación
asistencial
Subsidio >52 años o
fijos discontinuos
31
28
123
33
91
198
(192)
175
(143)
136
(106)
130
145
(116)
75
(69)
165
(143)
75
(67)
60
88
(78)
Duración
no empleo
Media
Mediana
183
86
209
142
181
62
31
94
45
75
Duración
empleo posterior
Media
Mediana
Nota: Para los perceptores de prestaciones se puede distinguir la duración efectiva del período total de no empleo y la
duración del período cubierto por las prestaciones. Entre paréntesis está la duración media y mediana del paro
protegido de los perceptores de prestaciones.
134
242
Todos
No perceptores
Perceptores
Duración
empleo anterior
Media
Mediana
Duración media y mediana (en días) de los episodios de empleo
anterior, no empleo y empleo posterior de los individuos que
transitan entre dos episodios de empleo, distinguiendo entre
perceptores y no perceptores de prestaciones. Episodios de
empleo que finalizan en 2004 y 2005.
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In USA : Katz and Meyer (1990), Fallick and Ryu (2007).
In Europe: Winter-Ebmer(1998); Roed and Nordberg (2003);
Jensen and Svarer, (2003); Mavroramas and Orme (2004); Alba,
Arranz and Muñoz-Bullón (2007).
Second, employer recall policies and/or implicit contracts
between employers and workers are a key determinant of both
the probability that individuals enter unemployment (via layoffs
decisions) and that they leave unemployment (via search and
rehire decisions).
Third, the use of temporary layoffs on the part of firms and the
existence of positive recall prospects on the part of (a portion of)
workers may affect the impact of labour market interventions
(recruitment incentives and subsidies for the training of the
unemployed). Therefore, recall expectations can alter the
conclusions reached by the evaluations of such programmes.
z
z
An analysis of rehirings is necessary for a proper understanding
of the determinants of unemployment durations and
unemployment policies.
First, studies show that rehirings are common (1/3 unemployed
workers)
Background
o
the interplay between UCS, the
use of fixed term contracts and the layoffrehire process.
o Discussing “experience rating”.
o Examining
- From job to job.
- From non-employment to a job.
- From insured unemployment into a job, nonemployment or other benefits.
the importance of rehirings in
labour market transitions in Spain:
o Documenting
Contributions of the paper:
Background
In Spain, the lack of experience rating in the UCS
and seasonal demand fluctuations may provide
strong incentives for implicit contracts.
At the same time, the flexible availability of fixed­
term contracts may be a reflection of these
incentives since, when fixed term contracts end,
no costs arise for employers.
In this context, unemployment benefit entitlements
may create incentives for employers to offer fixed­
term instead of permanent contracts, since the
end of contract gives the firm employment
flexibility and leaves open the future rehiring.
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Background
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z
z
z
Employment spells ending in 2004 or 2005.
16-59 years old.
Exclusions: self employment and agricultural sector.
Social Security records with information of employment and
covered unemployment spells of a 4% random sample of
Spanish individuals who have a relationship with the Social
Security in years 2004-2007.
Individual characteristics (gender, age, nationality, province).
Firm and job attributes (employer size, industry affiliation,
qualification level, type of contract, dates of start and end of
employment spells and reason for termination of employment
spell).
Unemployment benefit spells (types of benefits -UI, UA,
others-, number of days of benefit receipt).
Sample selection:
Dataset: MCVL 2004-2007
Lost job
Insured
unemployment (UI,UA) Non-employment
Employment
Recall job
New job
Other benefits
Non-employment
Recall job
New job
Recall job
New job
Transitions of job losers to employment, non-employment
and insured unemployment (in periods t+1 and t+2).
Transitions of job losers to employment, non-employment
and insured unemployment (in period t+1), by types of
contract. Employment periods ending in 2004 or 2005.
Spain: MCVL.
Transitions of job losers to employment, non-employment
and insured unemployment (in period t+1) and from these
states to a new job, a recall job, non-employment or other
benefits (in period t+2), by types of contract. Employment
periods ending in 2004 or 2005. Spain: MCVL.
Distribution of spells of non-employment and insured
unemployment and weeks of non-employment and
unemployment, by types of contract and spell outcome.
Employment periods ending in 2004 or 2005. Spain: MCVL.
%
0
10
20
30
40
50
60
70
1
2
3
4
5
6
7
8
9
UA_ reh iring s
UI_ reh iring s
NE_ reh iring s
Months
10
11
12
13
14
15
16
17
18
19
Recalls as a fraction of all spells of non­
employment and unemployment by duration and
types of transition.
%
0
10
20
30
40
50
60
70
80
90
1
2
3
4
5
6
7
8
9
Mont h s
z
10
11
12
R ecipien ts_F ixe d-ter m
13
R ec ipien ts _Pe rma nen t pe r ta sk
R ecipien ts_o pen e nde d
NE_F ixe d-t er m
NE_Pe rma nen t pe r ta sk
NE_o pen e nde d
14
1
5
16
Recalls as a fraction of all spells of nonemployment and unemployment by duration,
types of transition and types of contract in
previous job.
17
H azard
0
0.001
0.002
0.003
0.004
0.005
0.006
0.007
0.008
0.009
1
2
3
4
5
6
8
9
10
11
12
Rehirings(Non-employment)
7
13
15
16
17
18
19
Months
Rehirings(Benefits)
14
21
22
23
24
25
26
NEW JOB(Non-employment)
20
27
29
30
31
32
NEW JOB(Benefits)
28
33
34
35
36
Recall and new job hazards from uninsured non­
employment and insured unemployment.
Hazard
0
0.001
0.002
0.003
0.004
0.005
0.006
0.007
0.008
0.009
0.01
1
2
3
4
5
6
7
8
9
10
12
13
Rehirings(UI)
11
14
16
17
18
19
Months
Rehirings(UA)
15
21
22
23
NEW JOB(UI)
20
24
26
27
28
NEW JOB(UA)
25
29
30
31
32
33
34
Recall and new job hazards from UI and UA. 35
36
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Where dij=1 if duration is complete
n
ª 3 ª h (t) ºdij ª t
º
º
ij
L = ∏«∏«
» «∏(1−hik )»»
(1−hij (t))»¼ ¬ k=1
i=1 « j=1 «
¼»¼
¬ ¬
Discrete time competing risk model
Spell can end in j states:
z j=1 re-employment through a new job (ref.).
z j=2 re-employment through a recall job.
z j=3 remaining unemployment.
Assuming independence in the competing risks:
Econometric specification
k =1
L=∏
t
2
'
'
1 + ¦ exp(Dk α m + X k β m + v m )
m =1
ª 2
º
'
'
exp « ¦ (D α + X β + v ) c »
k m
k m
m mk
m
=
1
¼
¬
The contribution to the likelihood function for a single
individual is :
where:
x: vector of explanatory variables
ȕ: parameter vector
Į: baseline hazard
v: u
nobserved heterogeneity
m: indicators for the transitions to each possible destination
state at time k.
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Econometric specification
z
• Industry: recall hazard rates are larger in sectors such as
“Health”, “Education” and “Transport”.
• Firm size: workers previously employed in large firms exhibit
higher recall hazards.
• Level of qualification: white-collar workers holding jobs that
require higher qualification levels are more likely to be
recalled faster by their previous employer.
• Types of contract: workers who held a permanent per-task
contract exhibit a noticeably higher recall hazard as
compared to workers with a fixed-term contract and, above
all, with workers with an open-ended contract.
• Tenure in previous job: the chance of being recalled
diminishes with the duration of the previous job (insured
unemployment).
Job and firm characteristics are relevant:
Results
Results of the competing risks duration data model: recall
hazard rates.
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z
z
• Permanent per-task contracts (74%) and other fixed-term contracts
(43-44%).
• Large firms.
• Collective services.
The fact that Spanish UCS is not experience rated and the
extended use of fixed-term contracts facilitates short spells of
employment and unemployment and make rehirings more likely
(30% of job losers moving through the UCS return to their previous
employers).
The degree of cross subsidization is large in the Spanish labour
market and concentrates in firms and industries with higher labour
turnover and temporary employment and with more seasonal
product fluctuations. Although recalls are widespread along the
Spanish labour market, there are certain types of contracts, firms
and sectors which concentrate many of them:
New evidence on the importance of rehirings in labour market
transitions.
Special attention to the interplay between UCS, the use of
fixed-term contracts and the layoff-rehire process.
Conclusions z
z
These results suggest that there is room for the
reform of the way the UCS is financed, in
combination with changes in other labour market
institutions.
One proposal (Blanchard and Tirole, 2003) would
be to transform the uniform payroll taxes to finance
unemployment benefits into a layoff (or separation)
tax so that firms using the UCS more intensely are
the ones paying higher contribution rates. This
would make employers to internalize the social
costs associated with layoffs, reduce excessive job
separations and eliminate (or at least reduce)
cross-subsidization across firms and industries.
Conclusions