Beyond Regional Institutions: Widening Unemployment Differentials in Italy

Abstract. Building on Layard and Jackman's framework, we propose a simple model to analyse the relation between labour productivity and unemployment differentials in Italy and present some panel data evidence to support the theoretical predictions of the model. The empirical analysis strongly suggests that the productivity differential is one of the main factors driving the dynamics of the unemployment differential in Italy.     

Labour Surplus,Worker Rights and Productivity Growth: A Comparative Analysis of Asia and Latin America

How do labour market conditions, trade union rights and job security regulations affect labour productivity? This paper is the first attempt at an empirical analysis of this important question for a large sample of Asian and Latin American countries. We provide new estimates of the rates of surplus labour in 20 countries, as well as detailed tables summarizing their key regulations governing certain aspects of union activity and layoffs. Then we exploit these and other data in an econometric analysis of intercountry differentials in the growth rate of labour productivity in manufacturing during the 1980s. Among the principal results, we find that, while all else remains the same, productivity growth rates are significantly higher in countries with relatively larger labour surpluses, the effects of excess of labour on productivity growth are affected by the strength or weakness of union rights. We also find that the impacts of union rights and job security protections on productivity trends may be either positive or negative, depending on the labour market situation.     

Definition and effect of productivity on corporate performance

The discussion of productivity is usually dominated by considerations of the productivity of labour, but in general terms a productivity ratio may be defined as the number of physical units of output per unit of resource input. This gives rise to many productivity ratios and it can be shown that they are inter-connected, so that an improvement in one ratio can be achieved at the expense of others. Furthermore, an improvement in labour productivity need not always result in reduced unit costs and increased profitability. The relationships between all these measures need to be explored through a modelling approach to determine the conditions under which productivity contributes to improved corporate performance. Some examples demonstrate the use of the proposed methodology.     

Pathways to productivity improvement

A study of productivity in the Machine Tool industry has just been published by the Engineering Employers Federation (EEF). As a member of the Productivity Steering Group, information was available to one of the authors, in an unusually detailed and validated form for the twenty or so individual companies, (though they remain anonymous). It was thought worthwhile to apply methods developed in the Economics and Statistics Department of British Aerospace to this data in order to give pointers to the factors explaining productivity differences. The particular methods referred to were those of the Diagnostic Chart, though considerably simplified to match the data available, and multiple regression analysis. Particular care is necessary in applying the latter technique in productivity analysis if spurious results are to be excluded. The conclusions were as follows: the most favoured path to improved productivity is via increased turnover; changes in productivity are reflected mainly in changes in the ‘profit’ element of value added rather than in the labour cost element; the major factor distinguishing low from high productivity companies is an excess of the manual work force in relation to turnover; increased fixed assets favours increased labour productivity; increased commitment to R & D favours increased labour productivity; these conclusions are, of course, deduced from a study of the machine tool industry in particular, but may well be of applicability to other industries.     

Is Imperfect Competition in the Product Market Relevant for Labour Markets?

Recent research in macroeconomics emphasises the importance of imperfect competition in the product market for labour market outcomes. We investigate one aspect of this issue by specifying a dynamic labour demand model where firms face different degrees of competition in the product market and test its predictions for 299 US manufacturing industries. We find that the long-run equilibrium level of industry employment as well as the speed of labour demand adjustment decreases with market power. Our results imply that imperfect competition in the product market explains part of the observed labour market rigidities and also sheds new light on two “stylized facts” in industrial organisation, the observation of procyclical movements in productivity and price–cost margins in concentrated industries.     

Labour‐market Institutions and Macroeconomic Shocks

Abstract. Macroeconomic shocks and labour‐market institutions jointly determine employment growth and economic performance. The effect of shocks depends on the nature of these institutions and the effect of institutional change depends on the macroeconomic environment. It follows that a given set of institutions may be appropriate in one epoch and not in another. We derive a dynamic model of labour demand in which the effect of firing costs on labour demand depends on the macroeconomic environment: when the level of macroeconomic activity is expected to drop and/or the trend rate of productivity growth is small, a rise in firing costs affects mainly (and adversely) the hiring decision and not the layoff decision. This makes firing costs harmful to employment when it may appear most appropriate. In contrast, firing costs can raise employment during periods of high growth and positive shocks. Our hypothesis is supported by empirical results using OECD data.     

The Cyclical Volatility of Equilibrium Unemployment and Vacancies: Evidence From Italy

In this study, we explore the fluctuations of unemployment and vacancies in the Italian labour market over the last 20 years. Relying on the available sources of data for unfilled job openings, we find that even in Italy, similarly to other developed countries, there is a clean evidence of the unemployment volatility puzzle. In other words, we empirically assess that the tightness indicator is significantly more volatile than productivity over the whole period. In addition, on the theoretical ground, we show that a matching model with segmented labour markets and on‐the‐job search has the potential to provide a rationale for this pattern.     

Productivity,Real Wages and Worker Rights: A Cross-National Comparison

ABSTRACT: High unemployment in Europe has led many economists to recommend labour market deregulation — the removal of obstacles to labour market flexibility. These “obstacles” include union power, employment protection legislation and income security arrangements. We argue that such worker rights promote productivity and real wage growse effects. Policy-makers should be aware of these positive effects on productivity and real wage growth when considering curtailing worker rights in order to reduce unemployment.     

Union–Firm Bargaining,Productivity Improvement and Endogenous Growth

This paper presents a growth model with two sectors. In the high‐tech sector, R&D increases productivity and union–firm bargaining determines wages, but in the traditional sector there are neither R&D nor labour unions. The government is able to regulate union bargaining power. The main results are as follows. Because firms try to escape wage increases through the improvement of productivity by R&D, the increase in union bargaining power boosts R&D and growth. It is welfare enhancing to strengthen (weaken) unions when the growth rate is below (above) some critical level. A specific rule is presented for when de‐unionization is socially desirable.     

Potential productivity: Concepts and application

This paper is concerned with the meaning and measurement of potential productivity. Potential productivity is the difference between the actual and most efficient (optimal) productivity level. A number of concepts of potential productivity are outlined and their managerial implications discussed. Measures based on operating and lost time, peak output levels, estimating a capacity production function and work study (percentage utilisation of labour) are compared for the envelope-making division of a UK manufacturing company.     

Determination of Average Working Time in Finland

This study explores the determination of average working time in the context of a Nordic welfare state. The study is focused on the Finnish case. The issue is explored by using data from six industries from 1960 to 1996. The main empirical result is that both an increase in labour productivity and a widening of the tax wedge have contributed to a decline in average working time in Finland. These observations are consistent with the predictions of a theoretical model that is based on the notion of equilibrium working hours.     

A productivity study in a chemical plant

This paper describes a case study in the application of a productivity analysis model in a plant producing industrial gases. Although the process is a relatively simple one, several inputs (labour, electricity, capital and some materials) and several outputs (liquid and gaseous oxygen, gaseous nitrogen, argon and a hydrogen-nitrogen mixture) are involved. The case study demonstrates how measures of total input and total output can be applied and analyses the performance of the plant over a 15-month period in terms of a variety of managerial control ratios.     

Firm‐level Evidence on Gender Wage Discrimination in the Belgian Private Economy

In this paper we explore a matched employer–employee data set to investigate the presence of gender wage discrimination in the Belgian private economy labour market. Contrary to many existing papers, we analyse gender wage discrimination using an independent productivity measure. Using firm‐level data, we are able to compare direct estimates of a gender productivity differential with those of a gender wage differential. We take advantage of the panel structure to identify gender‐related differences from within‐firm variation. Moreover, inspired by recent developments in the production function estimation literature, we address the problem of endogeneity of the gender mix using a structural production function estimator alongside instrumental variable‐general method of moments (IV‐GMM) methods where lagged value of labour inputs are used as instruments. Our results suggest that there is no gender wage discrimination inside private firms located in Belgium, on the contrary.     

The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing

We combine profit sharing for high‐skilled workers and outsourcing of low‐skilled tasks in a partly imperfect dual domestic labour market, which means that only low‐skilled labour is represented by a labour union. In that framework we analyse how the implementation of profit sharing for high‐skilled workers influences the amount of outsourcing and the labour market outcome for low‐skilled worker. By doing this, we use some specific assumptions, e.g. exponentially increasing outsourcing costs or the wage for low‐skilled workers will be determined by a union whereas the wage for high‐skilled workers is given. Assuming that low‐skilled labour and outsourcing are interchangeable we show that profit sharing has a positive effect on the wage for low‐skilled workers and helps to decrease wage dispersion. However, under these circumstances, profit sharing enhances outsourcing. Concerning the employment effects for high‐ and low‐skilled workers, we show that there is an employment reducing effect due to higher wages for low‐skilled work, which can be offset by higher productivity of highly skilled workers, as the domestic labour inputs complement each other.     

Solving the Labour Problem Among Professional Workers in the UK Public Sector: Organisation Change and Performance Management

This paper draws together evidence from across the UK public services to present an analysis of public sector organisational change that has been observed and experienced since the 1980s. The argument is that the pattern of persistent change, packaged as a myriad of reform measures, has been centrally concerned with solving the labour problem—low worker productivity and managers not being able to manage—in what are labour intensive services. The now familiar managerial discourse of empowerment and high commitment working practices is highlighted and express linkages are drawn between such themes and the day-to-day practices of performance and human resource management, seen here to be key levers in solving the same labour problem through a reduction in the quality of working lives of many public service workers.     

Understanding the effects of outsourcing: unpacking the total factor productivity variable

Research on why firms should outsource and how they should do it has proliferated in the past two decades, but few consistent findings have emerged concerning the benefits of outsourcing. We argue that this is in part due to the lack of an adequate framework for measuring the effects of outsourcing. To address this, we present such a framework based upon the Cobb–Douglas productivity function. We explain how our framework can be used to unpack one component of the Cobb–Douglas productivity function, the ‘total factor productivity’, which represents the other numerous sub-variables that affect outsourcing productivity, beyond the capital and labour expenditures. We also demonstrate the framework using a simple illustrative example.     

Efficiency Wage,Fixed Employment Costs,and Dual Labour Markets

The standard efficiency wage‐based explanation of labour market dualism hinges on the existence of differences in monitoring across sectors. The paper proposes fixed employment costs as an alternative source of wage differentials for homogeneous workers. It shows that firms with larger fixed costs pay higher wages in order to elicit more effort from their workers, and tend to have higher capital/labour ratio and labour productivity. The model generates both involuntary unemployment and involuntary confinement in the secondary sector: high effort–high wage jobs are preferred to low effort–low wage jobs and either are preferred to unemployment. The proposed framework can also account for the various types of treatment of marginal jobs in primary sector firms envisaged by Doeringer and Piore (Internal Labour Markets and Manpower Analysis, 1971). In particular, an increase in fixed costs beyond a certain level may induce primary sector firms to restructure, segment production, and enter the secondary sector, thus converting their jobs into secondary jobs. From a welfare point of view, we cannot state in general the desirability of subsidizing fixed employment costs; however, we show that an employment subsidy financed by a wage tax is able to increase employment with no loss in terms of production.     

The Baumol Gap Revisited. An econometric analysis of the productivity differential between U.K. manufacturing and service firms, 1982–1989

The gap in productivity growth between manufacturing and service sectors is analyzed at company level using a panel of 328 British companies. This paper evaluates differences in the rate of growth of technological progresss (“Baumol gap”) in manufacturing and service companies, taking full account of the impact of changes in market competition, union recognition and financial position of firms. The empirical results suggest: (i) the gap in total factor productivity is significant and negative for distribution, lodging and catering sectors, positive but less significant for transport and communication sectors; (ii) the technological gap is higher than the gap in labour productivity; (iii) the gap can be attributed to technological factors, and it is invariant to the use of firm–level variables that capture effects on workers and managers effort; (iv) the estimate of total factor productivity growth in manufacturing and services is slightly influenced by these variables.     

Sources of Job and Worker Flows: Evidence from a Panel of Regions

Abstract. This study explores the structure and the dynamics of regional job and worker flows. The measures of job and worker flows are related to economic fluctuations, demographic factors and industry structure by employing the data of 85 Finnish regions over the period 1988–97. It is shown that labour market dynamics differ markedly between regions. As in previous analyses of linked employer–employee data, job and worker flows are shown to behave cyclically. In addition, the results indicate that observable differences in regional productivity, in‐migration, demographics and industry structure help to explain the prevailing disparities in regional labour markets.     

Part-Time Employment and the Utilisation of Labour Resources

The populations of industrialised countries, particularly in Europe, are ageing. Due to this demographic development social expenditure will increase, while the labour force will be growing only slowly or declining. These developments will have major economic implications. The number of people employed, the productivity per worker and the trend in their real earnings will be important factors constituting the base for levying taxes and premiums for financing social expenditure in the future. In this paper it is argued that the promotion of part-time employment contributes to a better utilisation of the labour supply potential in a country, to the broadening of the base for financial social security expenditure and at the same time reduces the number of benefits drawn. Some policy recommendations to promote part-time employment are also presented.