Working Paper: CEPR ID: DP5991
Authors: Etienne Wasmer
Abstract: Unlike many other contracts, employment contracts are subject to various external administrative procedures governing separations, ranging from compulsory severance payments and advance notice periods (usually seniority based), to collective layoff procedures (usually depending on the firm's size), and other forms of protections against arbitrary dismissal. These external constraints may raise the wellbeing of workers if everything remains constant, but may fail to do so once other economic channels are accounted for.Here, we explore the effect of such legislation on the firm's attitude towards insiders (i.e. protected workers), notably worker monitoring, working environment, and ultimately what we could term harassment. We show that during downturns, harassing workers in order to induce a quit is a substitute for greater dismissal freedom, and that intense monitoring and depreciated working conditions will occur. Thus, a more protected workforce may loose more than it gains from non-pecuniary pressures exerted by the firm.We test these mechanisms using data from a panel of Canadian individuals (the National Public Health Survey) including details on work-related stress and the consumption of various medications, including anti-depressants. By exploiting cross-province differences in employment protection legislation (EPL), we cannot reject the theoretical hypothesis: we even find positive links between individual employment protection and some dimensions of stress, and weaker but positive links between employment protection, depression and the consumption of various psychotropic drugs. Tenure and firm size information from another dataset is then used to generate further variance in EPL by imputation. This confirms the previous results, as well as falsification exercises: family stress for instance is not correlated with regional EPL, while financial stress is negatively correlated with EPL.
Keywords: employment protection; personnel economics; stress at work
JEL Codes: J41; J53; J81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher individual EPL (G19) | Increased stress levels at work (J29) |
| Higher individual EPL (G19) | Increased consumption of psychotropic drugs (I12) |
| Higher individual EPL (G19) | Greater stress due to management pressures and workplace dynamics (J29) |
| EPL (Z21) | Increased stress related to conflicting demands and relations with coworkers (J29) |
| EPL during economic downturns (F44) | Increased harassment as a substitute for layoffs (J63) |