IZA DP No. 9961: Permanent Jobs, Employment Protection and Job Content
forthcoming in: Industrial Relations
Using Programme for the International Assessment of Adult Competencies (PIAAC) data for 21 countries, I study the impact of employment protection laws (EPL) on job content. Economic theories predict that stricter protection increases workers' willingness to make firm-specific investments. These theories also predict that stricter protection leads firms to raise their hiring and promotion standards for permanent jobs. Both of these mechanisms predict higher levels of job content in permanent than in temporary jobs; further, it is predicted that stricter EPL increases the gap in job content between permanent and temporary jobs due both to workers' investments and firm hiring standards. I found support for both sets of predictions. First, in almost all cases, workers' self-reported use of influence, reading, writing, planning, numeracy and ict skills, and their task discretion, were higher in permanent than in temporary jobs. Second, stricter EPL raised the gap in job content for influence, reading, writing and planning skills used in permanent jobs vs. temporary jobs, controlling for industry, occupation and human capital. This finding suggests that workers are making firm-specific (or perhaps occupation- or industry- specific) investments that raise their productivity levels and thus warrant higher level job content. These effects became larger when I did not control for industry, occupation, government employment, and human capital variables including schooling, actual labor market experience, cognitive test scores and nativity status. The larger effects of EPL without these controls provide some indirect support for the idea that EPL leads firms to raise their hiring standards.