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Empirical Methods in Labour Economics Giovanni Sulis

Aims of the course: The course is a short introduction (12 hrs.) to the analysis and evaluation of labor market institutions, as employment protection legislation, trade unions and the minimum wage. Particular emphasis will be given to their impact on employment and wages, and the effect of recent reforms of such institutions. The course starts with defining what labour market institutions are and their expected theoretical impact on workers in the labour market, particular emphasis will also be given to their impact on firm level outcomes. Then, a particular attention will be devoted to explaining methodologies used in the literature to analyze the effect of labour institutions and the effect of their reforms. Applications using standard difference-in-difference, regression discontinuity design, and difference-in-regression-discontinuity-design will be illustrated and discussed in the class with students. Learning outcomes and competences: Upon successful completion of this course, students will be able to: - Understanding the role of labour market institutions and regulations in the labour market - Analyze the theoretical impact of labour market institutions, such employment protection

legislation, trade unions and minimum wages - Empirically evaluate the effect of labour institutions on workers and firms, in particular job

flows, worker reallocation, temporary contracts, wages, employment, productivity and investment in tangible and intangible capital

- Study the effect of recent labour market reforms that involve changes in the employment protection legislation, such as the Italian Jobs Act or the Fornero Reform.

- Master the main tools of analysis used in the empirical literature as difference-in-difference, regression discontinuity design, and difference-in-regression-discontinuity-design methodologies

- Understanding the content and implications of recent proposals in terms of the introduction of the minimum wage or other labour market reforms.

- Suggest policy makers the pros and cons of labour market reforms and be prepared to empirically evaluate possible reforms or policies.

Assessment methods:

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Course contents: Lectures 1 and 2 Labour Market Institutions and Market Performance (4 hrs)

1. What is employment protection legislation? 2. The effects of employment protection legislation with exogenous wages: a search

and matching model with endogenous job destruction and labour market equilibrium with firing costs.

3. The relation with wage bargaining, the importance of the wage setting mechanism. 4. Models of trade unions and their effects on wages, investment and productivity 5. From theory to empirics, how to identify empirical models using theory.

Required Reading: - Acemoglu, D. and J.-S. Pischke (1999). The structure of wages and investment in general

training. Journal of Political Economy 107(3), 539–572. - Cahuc P, Carcillo S and Zyberberg A (2014) Labor Economics, MIT Press, 2nd Edition - Cahuc, P. and F. Postel-Vinay (2002). Temporary jobs, employment protection and labor

market performance. Labour Economics 9(1), 63–91. - Rajan, R., Zingales, L., 1998. Financial dependence and growth. Am. Econ. Rev. 88 (3),

559–586. - Pissarides, C. A. (2000). Equilibrium unemployment theory. MIT Press.

Optional Reading: - Cahuc, P., O. Charlot, and F. Malherbet (2016). Explaining the spread of temporary jobs

and its impact on labor turnover. International Economic Review 57, 533–572. - Poschke, M., 2009. Employment protection, firm selection, and growth. J. Monet. Econ.

56 (8), 1074–1085. Lecture 3 and 4 – Employment Protection Legislation (4 hrs)

1. The effects of employment protection legislation on worker and job flows 2. The effects of the Italian Jobs Act on hirings and separations 3. The effects of firing costs on total factor and labour productivity 4. The effects on investment in physical capital and access to credit 5. The effect of firing costs on firm-provided training and the use of temporary contracts 6. The effects of employment protection on wages

Required Reading: - Autor, D., Kerr, W., Kugler, A., 2007. Does employment protection reduce productivity?

Evidence from US States. Econ. J. 117, F189–F217. - Bassanini, A., Garnero, A., 2013. Dismissal protection and worker flows in OECD

countries: evidence from cross-country/cross-industry data. Labour Econ. 21, 25–41. - Bassanini, A., Nunziata, L., Venn, D., 2009. Job protection legislation and productivity

growth in OECD countries. Econ. Policy 24, 349–402.

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- Boeri, T. and P. Garibaldi (2019). A tale of comprehensive labor market reforms: Evidence from the italian jobs act. Labour Economics, In Press.

- Bottasso A, Conti M and Sulis G (2017) Firm Dynamics and Employment Protection: Evidence from Sectoral Data, Labour Economics, 2017, 48 (October), 35-53

- Bratti, M. and M. Conti and G. Sulis "Employment Protection and Firm-provided Training: Quasi-experimental Evidence from a Labour Market Reform," available as CRENoS Working Paper 12_2019 and GLO Discussion Paper Series 368;

- Cingano, F., Leonardi, M., Messina, J., Pica, G., 2010. The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries. Econ. Policy 25, 117–163.

- Kugler, A., Pica, G., 2008. Effects of employment protection on worker and job flows: evidence from a 1990's Italian reform. Labour Econ. 15, 78–95.

- Leonardi, M. and G. Pica (2013). Who pays for it? The heterogeneous wage effects of employment protection legislation. Economic Journal 123(12), 1236–1278.

Optional Reading: - Bartelsman, E., Scarpetta, S., Schivardi, F., 2005. Comparative analysis of firm

demographics and survival: evidence from micro-level sources in OECD countries. Ind. Corp. Change 14 (3), 365–391

- Belot, M., Boone, J., van Ours, J., 2007. Welfare-improving employment protection. Economica 74, 381–396.

- Bertola, G., 1994. Flexibility, investment, and growth. J. Monet. Econ. 34 (2), 215–238. - Berton, F., F. Devicienti, and S. Grubanov-Boskovic (2017). Employment protection

legislation and mismatch: evidence from a reform. IZA Discussion Paper (10904). - Botero, J., Djankov, S., La Porta, R., Lopez-De-Silanes, F., Shleifer, A., 2004. The

Regulation of Labor. Q. J. Econ. 119 (4), 1339–1382. - Conti, M. and Sulis, G., 2016, "Human Capital, Employment Protection and Growth in

Europe," Journal of Comparative Economics, 2016, 44, 213-230. - Restuccia, D., Rogerson, R., 2008. Policy distortions and aggregate productivity with

heterogeneous establishments. Rev. Econ. Dyn. 11 (4), 707–720. - Saint-Paul, G., 2002. Employment protection, international specialization, and innovation.

Euro. Econ. Rev. 46, 375–395. Lecture 5 and 6 – Unions, Bargaining and the Minimum Wage

1. The characteristics and importance of the collective bargaining agreements 2. Measurement: union coverage and union density 3. The effects of union power on investment per worker: the hold-up problem 4. The level of bargaining and its effects on labour equilibrium 5. The minimum wage and its effects on employment and wages 6. Theoretical monopsonistic analysis of the minimum wages and empirical results

Required Reading:

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- Card, D., Devicienti, F., and Maida, A. (2014). Rent-sharing, holdup, and wages: Evidence from matched panel data. Review of Economic Studies, 81(1):84-111.

- David Card & Alan B. Krueger (2016) Myth and Measurement The New Economics of the Minimum Wage - Twentieth-Anniversary Edition; Princeton University Press.

- Cardullo G, Conti M and Sulis G (2015) Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Cross-Country Sectoral Data, European Economic Review, 2015, 76 (May), 253-274.

- Grout, P. A. (1984). Investment and wages in the absence of binding contracts: A Nash bargaining approach. Econometrica, pages 449-460.

- Manning, Alan (2005) Monopsony in Motion, Pricenton University Press- - Menezes-Filho, N. and Van Reenen, J. (2003). Unions and innovation: A survey of the

theory and empirical evidence, chapter 9. International Handbook of Trade Unions. Edward Elgar.

Optional Reading: - Cardullo, G. and M. Conti and G. Sulis (2018) "Unions, Two-Tier Bargaining and Physical

Capital Investment: Theory and Firm-Level Evidence from Italy," available as IZA Discussion Paper 12008 and CRENoS Working Paper 12 2018;

- Devicienti, F., P. Naticchioni, and A. Ricci (2018). Temporary employment, demand volatility, and unions: Firm-level evidence. Industrial and Labor Relations Review 71(1), 174–207.

- de Pinto, M. (2018). The impact of unionization structures with heterogeneous rms and rent-sharing motives. Scandinavian Journal of Economics, https://doi.org/10.1111/sjoe.12268.

- Krusell, P. and Rudanko, L. (2016). Unions in a frictional labor market. Journal of Monetary Economics, 80:35-50.

- Hirsch, B. T. (2004). What do unions do for economic performance? Journal of Labor Research, 25(3):415-455.

- Malcomson, J. M. (1997). Contracts, hold-up, and labor markets. Journal of Economic Literature, 35(4):1916-1957.