Temporary employment protection and productivity growth in EU economies

Abstract

This article examines national and industry-level differences in total factor productivity (TFP), or efficiency, for 14 European countries and ten industries for the period 1995–2007. The main aim is to ascertain the extent to which employment protection legislation (EPL) for workers with temporary contracts affects TFP, based on difference-in-difference estimations. The results show that the deregulation of temporary employment negatively affects TFP growth in European economies and that, at industry level, this liberalization affects industries with a higher propensity to use temporary workers. Furthermore, the authors find that the deregulation of temporary employment discourages training and the acquisition of firm-specific skills.