Measurability of Employment Protection Systems
Politica Economica, No. 3, 2004
25 Pages Posted: 14 Nov 2004
The paper analyses the method adopted by the index of employment protection systems developed in 1999 by the OECD and discusses its reliability and shortcomings, in particular with regards to Italy.
The paper highlights a series of problems of method arising from the aggregation of the respective indexes. It underscores the arbitrariness of weightings attributed and casts doubt on the possibility of developing an aggregate index generated as sum total of partial indexes. The paper finds a series of errors and imprecisions in the development of the index in Italy, in the light of an accurate reading of legal data as well as by scrutiny of court practice. The greater inaccuracies regard the index of rigidity attributed to legal provisions applicable to employment termination indemnities, individual dismissal, lay off and unemployment extraordinary benefits.
Re-examination of legal data has led to a substantial downgrading of Italy's labour market rigidity index. Yet, the most significant finding is the extreme volatility of the index according to the divers interpretations given to legal data and the peculiarities of the labour market in Italy. This observation is fraught with consequences regarding proper application of information provided by the rigidity index. In particular, an OECD index adjusted by factoring in the points developed in this paper would only reflect accurately some of the innumerable situations provided for at law. Any attempt to make it reflect the overall Italian labour market would be bound to fail.
This case study enables the authors to draw general conclusions on the pitfalls inherent to the development of synthetic indexes of employment protection systems based on sole review of legal documents and at the expense of legal practice in the field, and neglecting contextualization by the respective economic realities.
Keywords: Employment protection, dismissal law, temporary work, comparative law, econometrics, OECD index, severance pay, labour market
JEL Classification: C10, C31, C50, C51, J21, J30, K00, K10, K31
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