## wp17277

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### Research question and motivation
- Job protection regulation matters for productivity, employment, informality, and inequality.
- The paper asks: what are the short-term effects of deregulating regular job protection (EPL) and how do those effects vary with prevailing business conditions?
- Competing hypotheses summarized:
  - Reforms could raise output immediately via expectation effects.
  - Deregulation may pay off only slowly or entail short-term costs in the presence of slack macroeconomic conditions.

### Theoretical background
- Partial-equilibrium insight: Bentolila and Bertola (1990) — high firing costs reduce firms’ responsiveness of layoffs and employment to business conditions.
- DSGE/search-and-matching extensions (Cacciatore and Fiori (2016); Cacciatore et al. (2016a, 2016b)):
  - Lowering firing costs can trigger immediate layoffs of less productive workers.
  - Re-employment takes time, producing transitory declines in employment and output.
  - These transitory costs are larger when reform occurs in a recession.
- Aggregate employment effects of EPL ambiguous in older literature; clearer implications for productivity and job turnover.

### Data and identification
- Coverage: 26 advanced economies (listed in source).
- Period: 1970–2013.
- Reform dataset:
  - Identifies major legislative actions (reform shocks) for permanent workers from OECD Economic Surveys and country sources.
  - Reform variable: 0 in non-reform years, 1 in reform years, -1 in counter-reform years; implementation years used.
  - Classification rules: OECD normative language; repeated mentions; changes in OECD indicator in 5th percentile tails.
- Sectoral data:
  - Sector-level output and employment from EU KLEMS and World KLEMS.
  - Baseline sectoral natural layoff rate: U.S. layoff rates from 2004 CPS Displaced Workers Supplement; robustness uses U.K. layoff rates from Quarterly UK LFS.
- Identification strategy and estimation:
  - Differences-in-differences exploiting cross-sector variation in sectoral “natural” layoff rate (higher layoff rate → dismissal regulations more binding).
  - Local projection method (Jordà, 2005) to estimate dynamic responses for k = 0,..,4 horizons.
  - Regime-dependent specification uses smooth transition function F_it(z_it) with γ set to 1.5 (Auerbach and Gorodnichenko (2012)); baseline z_it = GDP growth (normalized), alternative z_it = unemployment.
  - Fixed effects: country-time (α_{i,t}), country-sector (γ_{i,j}), and sector-time (δ_{j,t}).
  - Instrumental variables: Age (share population 65+), Months (months to next legislative elections), Parties (left-wing dummy).

### Main empirical findings
- Baseline (equation (1)):
  - Over the medium term (four years after reform), EPL reforms for regular contracts tend to increase employment in industries with higher natural layoff propensity relative to low-layoff industries.
  - Quantitative magnitude: the differential medium-term employment gain between an industry at the 75th percentile and one at the 25th percentile of the cross-sector U.S. layoff-rate distribution is about 1 percent.
- Regime-dependent effects (equation (2)):
  - Effects vary strongly with business cycle conditions (smooth transition F_it with F=0 strong expansion, F=1 major recession).
  - During a strong expansion (F=0): differential medium-term effect (75th vs 25th percentile) is about 4 percent.
  - During a major recession (F=1): differential effect becomes negative, reaching -2 percent after two years; the negative effect is statistically significant in the first two years following the reform.
  - The difference in responses between strong and weak business cycle conditions is statistically significant at 5 percent at each horizon k = 0,..,4.
- Theoretical interpretation:
  - In recessions, relaxing dismissal constraints can trigger layoffs (firms dismiss more and hire less), increasing unemployment, weakening aggregate demand and delaying recovery.

### Robustness checks and IV evidence
- Alternative natural layoff measure:
  - Using U.K. layoff rates yields results largely similar to baseline.
- Controls for other reforms:
  - Adding interactions for temporary-worker EPL reforms, unemployment benefit reforms, and product market reforms does not materially change baseline results.
- Alternative slack measures:
  - Using unemployment instead of GDP growth in the smooth transition function yields similar responses (somewhat larger but not statistically different).
  - Using a binary recession dummy (GDP growth below sample average) yields somewhat larger but not statistically different responses.
- IV estimation (two-step):
  - First-stage regression excerpt:
    - R_{i,t} = 0.01 Age_{i,t} + 0.002 Months_{i,t} - 0.036 Parties_{i,t}
    - t-statistics (in parenthesis): (3.54) (2.58) (-3.80)
    - Joint F-test = 10.31
  - Second-stage: use fitted values of R_{i,t} to re-estimate equations (1) and (2).
  - IV results similar to OLS baseline—suggesting endogeneity is not a serious concern in this set-up.

### Spain: example — new indefinite-term contract with reduced redundancy and other reforms
- 1997 reform introduced a new permanent contract with reduced firing costs; deepened in March 2001 (pg. 65-66, 2001).
- 2010 reform measures (pg. 103, 2010; pg. 101, 2010):
  - If courts more readily accept dismissals as justified, severance payments could be reduced from 45 days’ wages to 20 days’ wages.
  - Broadened base for permanent contract with reduced severance payment of 33 days’ wages; ensured reduced severance pay also applies when firms would prefer to declare dismissals “unjustified”.
  - Introduction of a capital-funded component to reduce one-time dismissal costs.
- 2012 reform (pg. 34, 2012; pg. 98, 2012):
  - For objective reasons employer pays 20 days’ wages of severance pay per year of seniority.
  - If dismissal judged unjustified, maximum severance pay reduced to 33 days’ wages per year of seniority up to a maximum of 24 months (previous maximum 42 months under regular contract).
  - Eliminated need for administrative authorisation of collective dismissal.
  - Removed express dismissal option and interim wage obligation during adjudication.
  - New permanent contract for firms with fewer than 50 employees: extended trial period of one year (previous maximum six months) and various tax credits.
- Specific numeric severance and trial-period provisions cited:
  - 45 days’ wages (pre-2010 practice).
  - 20 days’ wages (severance when dismissals accepted by courts as justified).
  - 33 days’ wages (reduced severance payment broadened and capped under 2012 reform).
  - Maximum severance caps under 2012 reform: 24 months (new maximum), 42 months (previous maximum).
  - Trial period for new contract (firms <50): one year (previous maximum six months).

### Policy implications and reform design options
- Timing matters: avoid undertaking deregulation under adverse macroeconomic conditions when short-term employment declines are likely.
- Alternative approaches to reduce short-term costs under adverse conditions:
  - Pass—or credibly announce—today a reform that will come into force only in the future.
  - Grandfather the new legislation (apply it only to new contracts). Note: many post-Global Financial Crisis EPL reforms in Europe (Italy, Portugal, Spain) used grandfathering.
- Trade-offs:
  - Phasing or grandfathering can frontload positive hiring effects while delaying adverse layoff impacts.
  - Short-term benefits of phasing/grandfathering must be weighed against possible efficiency losses from more gradual implementation.
- The paper leaves a formal cost-benefit analysis of these reform strategies for future theoretical and empirical research.

### Summary statistics on timing of reforms and counter-reforms (cross-country pattern)
- EPL reforms: 48.6 percent occurred under lower economic growth; 51.4 percent occurred under higher economic growth.
- EPL counter-reforms: 40.0 percent occurred under lower economic growth; 60.0 percent occurred under higher economic growth.
- Note: lower (higher) economic growth defined as real GDP growth below (above) the reforming country’s sample average.

*Source: wp17277 — Sections II–IV, Chapter 3, and Conclusion as provided.*

### References .............................................................................................................

### wp17277 - References

### Research question and motivation
- Job protection regulation matters for productivity, employment, informality, and inequality.
- Virtually nothing was known about the short-term impact of deregulation, or how that impact varies with prevailing business conditions.
- Competing hypotheses in the literature:
  - Reforms could raise output immediately via expectation effects (Draghi 2015).
  - Deregulation may pay off only slowly or entail short-term costs in the presence of slack macroeconomic conditions (Rodrik 2015; Eggertsson, Ferrero, and Raffo 2014; Krugman 2014).

### Theoretical background
- Partial equilibrium: Bentolila and Bertola (1990) — high firing costs reduce firms’ responsiveness of layoffs and employment to business conditions.
- DSGE/search-and-matching extensions: Cacciatore and Fiori (2016); Cacciatore et al. (2016a, 2016b) — lowering firing costs triggers immediate layoffs of less productive workers, re-employment takes time, producing transitory declines in employment and output; these transitory costs are larger when reform occurs in a recession.
- Older and recent literature points to ambiguous aggregate employment effects of EPL, but clearer implications for productivity and job turnover.

### Data and identification
- New narrative cross-country dataset of major reforms of job protection legislation for permanent workers:
  - Covers 26 advanced economies.
  - Period: 1970-2013.
  - Identifies precise timing and nature of major legislative actions (reform “shocks”).
- Empirical strategy:
  - Local projection method (Jordà, 2005) to estimate dynamic responses of sectoral employment.
  - Smooth transition function from Auerbach and Gorodnichenko (2012) to explore role of macroeconomic conditions (adapted to job deregulation shocks).
  - Differences-in-differences identification à la Rajan and Zingales (1998) using country-sector-level data (three-dimensional dataset: j industries, i countries and t time periods).
  - Fixed effects: country-time (i, t), country-industry (i, j), and industry-time (j, t) to control for aggregate and country-sector shocks and mitigate reverse causality.
  - Instrumental Variable (IV) regressions: EPL reforms instrumented by demographics, timing of elections, and political orientation of the government.
  - Robustness checks include interactions between other reforms and sector-specific natural layoff rates and additional controls.

### Key empirical findings
- Short-term effects of job protection deregulation vary with macroeconomic conditions at the time of reform:
  - Effects are positive in an expansion.
  - Effects become negative in a recession.
- Findings are robust across estimation strategies (local projections, differences-in-differences, IV) and robustness checks.
- Implication consistent with theory: deregulation in depressed economies yields larger short-term employment and output losses.

### Policy implications and recommendations
- Prefer undertaking job protection reform in good times.
- Alternatively, design reforms to enhance short-term impact:
  - Pass reforms that come into force only later when economic conditions improve.
- Account for timing relative to the business cycle when planning major EPL deregulation to avoid transitory employment and output losses.

*Source: wp17277 - References*

### Section III sets up our econometric framework. Section IV provides the main regression

### wp17277 - Section III sets up our econometric framework. Section IV provides the main regression

### Data: Employment Protection Legislation (EPL) reforms and auxiliary series
- Coverage: 26 advanced economies: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Slovak Republic, Spain, Sweden, Switzerland, United Kingdom and United States.
- Major EPL reforms for permanent workers identified from OECD Economic Surveys (since 1970) and additional country sources.
- Identification procedure:
  - Step 1: record all legislative and regulatory actions related to regular EPL mentioned in any OECD Economic Survey for the 26 countries; over 100 such actions identified.
  - Step 2: classify an action as a major reform (value = 1) or counter-reform (value = -1) if at least one of three criteria is met:
    - (1) OECD uses strong normative language (e.g., “major reform”);
    - (2) policy action is mentioned repeatedly across editions or retrospective summaries;
    - (3) existing OECD regular EPL indicator change lies in the 5th percentile of the distribution of changes (or would be in the top 5th percentile if OECD score unavailable).
  - When only criterion (3) applies, an extensive domestic-source search is performed to identify the precise policy action.
- Variable construction: for each country-year the reform variable takes value 0 in non-reform years, 1 in reform years, and -1 in counter-reform years; implementation years are used.
- Advantages vs. alternatives:
  - Identifies precise timing and nature of major legislative actions since early 1970s (longer coverage than OECD indicators starting mid-1980s).
  - Focuses on major legislative reforms rather than listing all minor actions.
  - Allows identification of short-term effects of reform shocks.
- Limitation: database only permits estimation of average impact across major historical reforms (heterogeneity of specific actions within “major” reforms cannot be separately estimated). Database does not measure the stance of current (or past) EPL.

- Sectoral and layoff data:
  - Sector-level output and employment: EU KLEMS and World KLEMS databases.
  - Sectoral natural layoff rate: U.S. layoff rates from the 2004 CPS Displaced Workers Supplement (Bassanini et al., 2009). Robustness checks use U.K. layoff rates computed from Quarterly UK Labor Force Survey.
- Stylized facts:
  - Most EPL reform activity occurred in the 2000s, particularly in Southern Europe after the Global Financial Crisis; many counter-reforms clustered in the 1970s.
  - Implementation of major EPL reforms does not appear to have depended significantly on economic conditions: the share of EPL reforms is almost identical between periods of high and low economic growth; counter-reforms tended to occur mostly during expansionary times.

### Econometric framework: identification and specifications
- Identification strategy: differences-in-differences exploiting cross-sector variation in a sector’s “natural” layoff rate (higher natural layoff rate → dismissal regulations more binding). Approach follows Bassanini et al.(2009) and is in the spirit of Rajan and Zingales (1998).
- Estimation method: local projections (Jordà, 2005) to estimate impulse-response functions (flexible alternative to VAR/ARDL; suited for nonlinearities and interactions).
- Two main specifications:
  - Baseline (equation (1)): tests whether EPL reforms affect sectoral employment.
    - Dependent variable: log employment in sector j of country i at t+k, y_{i,j,t+k}.
    - Controls and fixed effects:
      - α_{i,t}: country-time fixed effects (control for common country shocks and other country-level reforms).
      - γ_{i,j}: country-sector fixed effects.
      - δ_{j,t}: sector-specific time dummies.
    - Key regressor: R_{i,t} (EPL reform variable: 0 non-reform, 1 reform, -1 counter-reform) interacted with λ_j (sectoral “natural” layoff rate; baseline uses U.S. layoff rates).
    - Controls X_{i,j,t}: two lags of sectoral employment growth and two lags of EPL reforms interacted with λ_j.
    - Equations estimated for k = 0,..,4.
  - Regime-dependent (equation (2)): allows dynamic response to vary with state of the economy via smooth transition function F_it(z_it).
    - z_it is the indicator of the state of the economy normalized to zero mean and unit variance (baseline uses GDP growth; unemployment used in robustness).
    - F_it is a smooth transition function; parameter γ set to 1.5 following Auerbach and Gorodnichenko (2012).
    - Specification includes interaction terms between F_it and sectoral layoff rates and includes same control set M (which also includes interaction between F_it and layoff rates).
- Inference:
  - Impulse response functions computed from estimated β_k coefficients.
  - Confidence bands from clustered standard errors at the country-sector level.
  - Estimation by OLS with rich fixed effects; concerns about endogeneity mitigated by fixed effects and plausibility arguments (U.S. natural layoff rates orthogonal to other countries’ sectoral employment; sectoral employment unlikely to drive EPL reform once country-time fixed effects included).
- Remaining endogeneity concern: other macro variables interacting with natural layoff rates (e.g., reforms of EPL for temporary workers). Addressed by robustness checks and IV estimation.

### Main results (OLS baseline and regime heterogeneity)
- Baseline (equation (1), Figure 2):
  - Over medium term (four years after reform), EPL reforms for regular contracts tend to increase employment in industries with higher natural layoff propensity relative to low-layoff industries.
  - Quantitative magnitude: the differential medium-term employment gain between an industry at the 75th percentile of the cross-sector distribution of U.S. layoff rates and one at the 25th percentile is about 1 percent.
- Regime-dependent effects (equation (2), Figure 3):
  - Effects of EPL deregulation vary strongly with business cycle conditions:
    - During a strong expansion (smooth transition function F takes value 0): differential medium-term effect (75th vs 25th percentile layoff rate) is about 4 percent.
    - During a major recession (F takes value 1): differential effect becomes negative, reaching -2 percent after two years; this negative effect is statistically significant in the first two years following the reform.
  - The difference in responses between strong and weak business cycle conditions is statistically significant at 5 percent at each horizon k = 0,..,4.
- Theoretical interpretation:
  - In recessions, relaxing dismissal constraints can trigger layoffs (firms dismiss more and hire less), increasing unemployment, weakening aggregate demand and delaying recovery (cited mechanism: Bentolila and Bertola, 1990; Cacciatore et al., 2016b).

### Robustness checks and Instrumental Variables (IV) estimation
- Alternative natural layoff measure:
  - Using U.K. sectoral layoff rates as alternative to U.S. rates (Figures 4 and 5).
  - Results largely similar and not statistically different from baseline.
- Omitted variable checks:
  - EPL reforms for temporary workers:
    - Added interaction between temporary EPL reforms and sectoral layoff rate (and business cycle state).
    - Data on major temporary-contract reforms from Duval and others (forthcoming).
    - Results (Figures 6 and 7): effects of regular EPL reforms on sectoral employment very close to baseline; no significant effect of temporary-worker EPL reforms on sectoral employment even across regimes.
  - Unemployment benefit reforms:
    - Added interaction of benefit reforms with sectoral layoff rate and with business cycle state.
    - Results (Figures 8 and 9): inclusion does not significantly affect baseline results.
  - Product market reforms:
    - Added interaction of product market reforms with sectoral layoff rate and with business cycle state (data from Duval and others (forthcoming)).
    - Results (Figures 10 and 11): very similar to baseline.
- Alternative definitions of economic slack:
  - Use unemployment rate instead of GDP growth to compute smooth transition function (Figure 12): responses across regimes similar to baseline; somewhat larger but not statistically different.
  - Use a binary dummy for recession (GDP growth below sample average) instead of smooth transition function (Figure 13): estimated responses somewhat larger but not statistically different from baseline.
- Instrumental Variables estimation:
  - Instruments used:
    - Age: share of population aged 65 and over (World Bank WDI).
    - Months: number of months to next legislative elections (World Bank Database on Political Institutions).
    - Parties: dummy for political orientation (1 for left-wing parties, 0 for center-right parties) (Database on Political Institutions).
  - Two-step procedure:
    - First stage: regress EPL reforms on instruments controlling for time and country fixed effects.
    - First-stage reported results (equation (3) excerpt):
      - R_{i,t} = 0.01 Age_{i,t} + 0.002 Months_{i,t} - 0.036 Parties_{i,t}
      - t-statistics in parenthesis: (3.54) (2.58) (-3.80)
      - Joint F-test = 10.31.
    - Second stage: re-estimate equations (1) and (2) using fitted values of EPL reforms from first stage.
  - IV results (Figures 14 and 15): similar to, and not statistically different from, OLS baseline results—suggesting endogeneity is not a serious concern in this set-up.

*Italic: Source — IMF working paper (wp17277), Sections II–IV as provided.*

### CONCLUSION

### CONCLUSION

### Main findings
- The paper estimated the short-term impact of deregulating regular job protection and how it varies with prevailing business conditions.
- Method: applied a local projection method to a new dataset of major reforms in advanced economies spanning over four decades.
- Identification assumption: stringent dismissal regulations are more binding in sectors that are characterized by a higher “natural” layoff rate.
- Main empirical result: employment rises when reform is undertaken during economic expansions, but declines when reform happens during recessions.
- Robustness: this result is robust to a battery of sensitivity checks, including to IV estimation using political economy drivers of reforms as instruments.
- The result is consistent with economic theory that, to the authors’ knowledge, had been untested thus far.

### Policy implications and reform design options
- Timing:
  - If streamlining job protection for regular workers yields long-term economic gains and reform is therefore worth pursuing, timing matters: avoid undertaking deregulation under adverse macroeconomic conditions when short-term employment declines are likely.
- Alternative approaches to reduce short-term costs under adverse conditions:
  - Pass—or credibly announce—today a reform that will come into force only in the future.
  - Grandfather the new legislation (apply it only to new contracts). The paper notes this was a design feature of many post-Global Financial Crisis reforms of employment protection legislation in Europe, notably in Italy, Portugal and Spain where some provisions of the reforms of the 2010s were grandfathered.
- Trade-offs:
  - These strategies can frontload the positive hiring effect of reform while delaying its adverse impact on layoffs.
  - Short-term gains from phasing or grandfathering should be weighed against possible efficiency losses from a more gradual phasing-in of the reform.
- The paper leaves a formal cost-benefit analysis of these reform strategies for future theoretical and empirical research.

### Research limitations and future work
- The authors explicitly leave a cost-benefit analysis of alternative reform strategies (e.g., delayed implementation, grandfathering) for future theoretical and empirical research.
- The conclusion signals the need to quantify efficiency losses associated with more gradual phasing-in of reforms.

### Methodological note
- Footnote: “In the second step, we bootstrap the standard errors to account for the fact that our left-hand-side variable is estimated.”6

*Source: wp17277 - CONCLUSION*

### Chapter 3.

### Chapter 3

### Literature and theoretical background
- Citations compiled on employment protection legislation (EPL), labor market reforms, and macroeconomic interactions, including works by Bassanini and Duval (2009); Bentolila and Bertola (1990); Blanchard and Wolfers (2000); Boeri (2011); Cacciatore et al. (2016a, 2016b); Duval and Furceri (2017); Eggertsson, Ferrero, and Raffo (2014); Pissarides (2000); Romer and Romer (2015); Rodrik (2015); and others.
- Methodological references include Jordà (2005) on local projections and Granger and Teräsvirta (1993) on nonlinear modelling.

### Empirical specification and key estimation notes
- Baseline estimates are based on equation (1): differential employment effect of EPL reform between a sector with a high natural layoff rate (at the 75th percentile of the distribution) and a sector with a low natural layoff rate (at the 25th percentile of the distribution).
- Business-cycle interaction estimates are based on equation (2): show differential employment effects under weak and strong business cycle conditions.
  - Effects under strong (weak) business cycle conditions are shown using F=0 (F=1) in the figures.
  - Alternative measures of business cycle conditions are used in robustness checks: unemployment rather than GDP growth; a dummy variable equal to 1 when a country’s GDP growth is below its sample average, and zero otherwise.
- Confidence intervals reported are 90 percent confidence intervals based on standard errors clustered at country-sector level.
- Instrumental-variable (IV) estimates are reported using equation (1) with IV and equation (2) with IV to check robustness of baseline results.

### Main empirical findings (as presented in figures and notes)
- EPL reforms produce a differential employment effect when comparing high-layoff-rate sectors (75th percentile) to low-layoff-rate sectors (25th percentile). (See baseline: equation (1).)
- The differential employment effect of EPL reforms varies with business cycle conditions:
  - Under weak business cycle conditions the response differs from that under strong business cycle conditions (effects shown via equation (2); F=1 denotes weak, F=0 denotes strong in the figures).
  - Robustness checks present corresponding responses under alternative business-cycle measures (unemployment-based smooth transition, unemployment high/low panels, and dummy-variable approach).
- Robustness checks and alternative specifications presented:
  - Using U.K. layoff rates as the measure of natural layoff rates (Figures 4 and 5).
  - Controlling for reforms of EPL for temporary contracts (Figures 6 and 7).
  - Controlling for unemployment benefit reforms (Figures 8 and 9).
  - Controlling for product market reforms (Figures 10 and 11).
  - Using unemployment rather than GDP growth to measure business cycle conditions in the smooth transition function (Figure 12).
  - Using a dummy variable rather than a smooth transition function to measure business cycle conditions (Figure 13).
  - IV estimates of the baseline and business-cycle-dependent effects (Figures 14 and 15).
- Across specifications, figures consistently plot the differential effect between the 75th and 25th percentile sectors, and show uncertainty bands given by 90 percent confidence intervals.

### Table 1 — Inventory of major EPL reforms (1970–2013) — selected entries and coding
- Table 1 catalogs major reforms of job protection legislation for permanent workers in 26 advanced economies over 1970-2013, reporting:
  - Implementation/Scored Year, Area, Content, Normative language, Mention in other reports, Large change in OECD indicator, reform/counter-reform coding (where reforms are coded as 1 and counter-reforms as -1 in the table).
- Selected country-year entries (preserve exact wording and numeric values as in table):
  - United Kingdom, 2000, severance pay: "Quadrupling maximum compensation for unfair dismissals from October 1999 (pg. 116, 2000)" — yes for 2000 — -1.
  - Austria, 2003, severance pay: "...the system underwent thorough reform. In the new system, which became effective in January 2003, the management of severance pay is attributed to retirement accounts, which are legally independent from the employers and funded by employers via a monthly untaxed payment of some 1.5 per cent of gross wages. Accumulated entitlements rest in the employee’s account until retirement, unless the work contract has been terminated by the employer, which makes cash payments admissible under certain conditions... (pg. 66, 2003)" — yes for 2003 — 1.
  - Belgium, 1970, notice for individual dismissal: "In November 1970, the notice period, which had been lengthened from 21 to 30 days early in 1969, was increased to three months. The possibility of a further extension to five months was left open and the five months' period was applied in most cases. (pg. 27, 1971)" — no data but would qualify if scoring applied — -1.
  - France, 1987, procedural inconvenience: "Checks on the genuineness of redundancies in firms with fewer than 10 employees to be discontinued (and from 1st January 1987, official authorisation for lay-offs no longer necessary). (pg. 76, 1987)" — yes for 1987 — 1.
  - France, 2003, collective dismissal: description of Social Modernisation Law tightening constraints in 2002 and subsequent suspensions/modifications in 2003–2004 — yes for 2003 — -1.
  - Germany, 1994, notice for individual dismissal: "Notice period for blue-collar workers extended to four weeks, thereby aligning it with that of white-collar workers" — yes for 1994 — -1.
  - Germany, 1997, procedural inconvenience: "Legislation easing employment protection provisions...came into force in October 1996... The employment ceiling for enterprises above which employment protection is applicable was raised from five to ten employees per firm..." — no — 1.
  - Italy, 1970, procedural inconvenience: "The Act of 1970 referred to as the 'workers' statute'. Mechanism for reinstatement after a dismissal has been declared unlawful...laid down by Article 18" — No data but would qualify if scoring applied — -1.
  - Italy, 2013, procedural inconvenience: "Comprehensive labour market reform (with explicit provision for monitoring of its effects) including: relaxation of employment protection rules, reduced incentives to hire on non-permanent contacts.... potentially increase in flexibility on the firing side... (pg. 42, 2013) ...reform relaxed employment protection rules on permanent contracts, notably limiting the possibility of reinstatement following unfair dismissal. (pg. 27, 2015)" — yes for 2013 — 1.
  - Greece, 2011, notice for individual dismissal, severance pay, collective dismissal: 2010 measures (Laws 3863/2010 and 3899/2010) included reduction in notice period (example: for an employee working 28 years or more, notification reduced to 6 from 24 months), ability to pay severance in installments when exceeding 2 months’ pay, redefinition of collective dismissal thresholds, and extension of probationary period from 2 months to 1 year (pg. 123, 2011) — yes in 2011 — 1.
  - Greece, 2012, severance pay: "The length of prior notice of dismissal has been shortened to a maximum of four months, compared to 24 months for white-collar workers previously. The severance pay for white-collar workers has been reduced and subjected to a ceiling of 12 months’ salary. (pg. 50, 2013)" — yes for 2012 — 1.
  - Ireland, 2012, severance pay: "Before 2012, the Government paid a rebate to employers for redundancy payouts to employees. Up until 1 January 2012 this rebate amounted to 60%; between 1 January 2012 and 1 January 2013, the Government rebate was 15%; from 2013 onwards the Government rebate was abolished" — yes in 2012 — -1.
  - Portugal, 2004, procedural inconvenience: "The new Labour Code (Código do Trabalho), which came into force in December 2003, replaces individual and collective labour legislation with a unified text... employers now have the right to oppose the reinstatement of workers in dismissal cases under certain conditions..." — yes in 2004 — 1.
  - Spain, various years (1977/1978, 1980/1981, mid-1994/1995, 1998): entries describe liberalisation of dismissals, Workers Statute reforms, and severance-pay-related reform efforts — 1978 entry coded 1; 1981 entry coded 1; mid-1994/1995 coded 1.
- Table entries preserve the original page citations (e.g., pg. 116, 2000; pg. 66, 2003; pg. 27, 1971; pg. 76, 1987) and the reform/counter-reform coding as reported.

*Italicized attribution: Chapter 3, wp17277 - Chapter 3.*

### introduction of a new type of indefinite-term contract with reduced redundancy

### introduction of a new type of indefinite-term contract with reduced redundancy

### Spain: evolution of permanent contract with reduced firing costs
- 1997 reform introduced a new permanent contract with reduced firing costs (referenced in measures broadened in early 2001; pg. 65-66, 2001).
- March 2001 deepening of 1997 reform (pg. 66, 2003):
  - Extension of the new permanent contract beyond May 2001.
  - Permanent contract with reduced firing costs continued to apply to specific groups: workers aged 18-29, workers with a temporary contract, workers aged over 45, workers that have been unemployed for more than one year, women in some professions.
  - Extension of coverage to young workers defined as those aged between 16 and 30, long-term unemployed (for more than 6 months), unemployed women in sectors where they are underrepresented, and disabled workers. (pg. 66, 2003)
- September 2010 labour market reform aims to reduce dismissal-cost upper range and smooth difference between temporary and permanent contracts (pg. 103, 2010; pg. 101, 2010):
  - If courts more readily accept dismissals as justified, severance payments could be reduced from the current practice of 45 days’ wages to 20 days’ wages.
  - Broadened base for the permanent contract with reduced severance payment of 33 days’ wages; ensured reduced severance pay also applies when firms would prefer to declare the dismissal upfront as “unjustified”.
  - Introduction of a capital-funded component, similar to the Austrian severance pay reform, to further reduce one-time dismissal costs. (pg. 103, 2010)
- 2012 labour market reform to reduce duality and reform employment protection legislation (pg. 34, 2012; pg. 98, 2012):
  - Redefines economic reasons for dismissal; for objective reasons employer pays 20 days’ wages of severance pay per year of seniority.
  - If a dismissal is judged unjustified, maximum severance pay is reduced to 33 days’ wages per year of seniority up to a maximum of 24 months, compared with 45 days and a maximum of 42 months on the regular permanent contract before. Applies to all new contracts and future years of service on existing contracts.
  - Eliminates need for administrative authorisation of collective dismissal.
  - Removes option of express dismissal (firms declaring dismissal upfront as “unjustified” to pay 45 days’ wages per year of seniority); firms no longer obliged to pay interim wages during adjudication.
  - Introduces a new type of permanent contract for companies with fewer than 50 employees: hiring on this new contract is subject to an extended trial period of one year (previous maximum six months) and various tax credits. (pg. 98, 2012)

### Specific numeric severance and trial-period provisions (Spain)
- 45 days’ wages (pre-reform practice referenced as “current practice” prior to 2010 reforms). (pg. 103, 2010)
- 20 days’ wages (severance when dismissals accepted by courts as justified; mentioned in 2010 and 2012 reforms). (pg. 103, 2010; pg. 34, 2012)
- 33 days’ wages (reduced severance payment broadened in 2010 and capped at 33 days if dismissal judged unjustified under 2012 reform). (pg. 103, 2010; pg. 34, 2012)
- Maximum severance caps under 2012 reform:
  - 24 months (maximum when dismissal judged unjustified under new rules). (pg. 34, 2012)
  - 42 months (previous maximum under regular permanent contract before reform). (pg. 34, 2012)
- New permanent contract for firms with fewer than 50 employees: extended trial period of one year (previous maximum six months). (pg. 98, 2012)

### Policy intent and assessments (Spain)
- Reforms described as “significant progress” and “a substantial step in the right direction” with emphasis on clarifying justified dismissal and reducing duality between contract types. (pg. 101, 2010; pg. 34, 2012)
- Introduction of capital-funded component intended to reduce one-time dismissal costs and smooth firing-cost differentials. (pg. 103, 2010)

### Other country examples of procedural or contract reforms (selected)
- Australia:
  - Workplace Relations Amendment (Work Choices) Act 2005 took effect in Q1 2006, reinforcing employers’ prerogatives at the expense of employees. (pg. 81, 2012)
  - Work Choices removed unfair dismissal protections for employees of firms with fewer than 100 employees; Fair Work Act restored protections with minimum qualifying periods of one-year service for firms with fewer than 15 employees and six months for firms with 15 or more employees. Additional protections against discrimination and adverse actions broadened. (pg. 83-84, 2012)
- New Zealand:
  - Employment Relations Act 2000 (ERA) made mediation a mandatory first step to avoid undue litigation; introduced Employment Relations Authority and Employment Court appellate/redirection mechanisms. (pg. 78-79, 2000)
  - ERA amended to extend trial period provisions (for up to 90 days) from firms with fewer than 20 employees to all firms effective 1 April 2011. (pg. 56, 2011)
- Korea:
  - March 1997 labour law reform allowed dismissals for “urgent managerial reasons” with specified management requirements; implementation discussed by Tripartite Commission in February 1998 to help firms restructure after the crisis. (pg. 166, 1998)
- Czech Republic:
  - New labour code passed by lower chamber in early 2006 to allow wider scope of employment contracts via an “anglo-saxon” legal form (pg. 36, 2006). 2012 revisions effective January 1st 2012 introduced wider possibilities for employers to terminate employment and extended maximum probationary period to 6 months for executive employees.
- Slovak Republic:
  - Major amendments to the Labour Code adopted June 2003 effective 1 July 2003 introduced more flexibility in termination rights; statutory notice period reduced to two months in most cases, three months for employees with more than five years’ service. (pg. 121-122, 2004)
  - 2012 amendments eased legislation on regular contracts (shortening of length of notice period).

### Cross-country reform-counterreform pattern (Table 2)
- EPL reforms: 48.6 percent occurred under lower economic growth; 51.4 percent occurred under higher economic growth.
- EPL counter-reforms: 40.0 percent occurred under lower economic growth; 60.0 percent occurred under higher economic growth.
- Note: lower (higher) economic growth = real GDP growth below (above) the reforming country’s sample average.

*Source: wp17277 - introduction of a new type of indefinite-term contract with reduced redundancy (IMF PDF).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2017/wp17277.pdf_