Employment Protection, Threat and Incentive Effects on Worker Absence
| DOI | http://doi.org/10.1111/j.1467-8543.2012.00916.x |
| Published date | 01 June 2014 |
| Date | 01 June 2014 |
Employment Protection, Threat and
Incentive Effects on Worker Absence
Steve Bradley, Colin Green and Gareth Leeves
Abstract
This article provides new evidence on the effect of changes in employment
protection on worker absence. We use novel multi-organization data to examine
changes in worker absence as workers move from temporary to permanent
employment contracts. We demonstrate a robust positive effect of employment
protection on sickness absence. It has also been suggested that the impact of
employment protection on absence and effort is due to a fear of dismissal. We
also provide evidence that suggests that temporary workers’ absence is influ-
enced by incentives to attain jobs with protection that is unrelated to threat of
dismissal. This has not been considered in earlier research. This channel of
employment protection effects has important policy implications.
1. Introduction
A long-standing concern of the literature on employment protection legisla-
tion is its impact on labour market transitions and unemployment. However,
recently a literature has also developed that specifically focuses on the effect
of employment protection on worker effort measured through variations in
absenteeism (Engellandt and Riphahn 2005; Ichino and Riphahn 2004, 2005;
Olsson 2009; Riphahn and Thalmaier 2001). The key insight from this litera-
ture is that increased employment protection substantially reduces worker
effort. It is suggested that this reflects workers’ greater fear of job loss when
employment protection is limited. The majority of this evidence comes from
workers on ex ante known fixed probation periods. In practice, in many
countries including Spain, Portugal, the United Kingdom and Australia,
workers can be on ongoing temporary contracts where transition to perma-
nent employment may occur in the future with uncertainty over both the
likelihood and timing. Critically, workers without employment protection
Steve Bradley and Colin Green are at Lancaster University. Gareth Leeves is at Monash
University Sunway Campus.
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British Journal of Industrial Relations doi: 10.1111/j.1467-8543.2012.00916.x
52:2 June 2014 0007–1080 pp. 333–358
© 2012 John Wiley & Sons Ltd/London School of Economics. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
may respond differently where this type of uncertainty is present. For
instance, it may be easier for workers to maintain higher levels of effort for
short probationary periods than in ongoing temporary employment. This
could consequently lead to different observed effects of employment protec-
tion on absence in these alternative scenarios. This article therefore seeks to
add to the existing evidence on employment protection effects on worker
effort by examining a situation where the transition to permanent employ-
ment is uncertain.
While existing research has stressed that the lack of employment protection
increases effort (reduces absence) because of an increased fear of job loss, the
effort decisions of workers with limited employment protection may also be
affected by incentives (Audas et al. 2004; Wilson and Peel 1991). Specifically,
temporary or probationary work contracts may be used by employers to
screen workers for suitability for permanent contracts (Booth et al. 2002;
Green and Leeves 2004). Moreover, permanent jobs may offer a range of
benefits, such as higher pay or access to future promotions that may provide
further incentives for temporary workers to work harder in addition to
employment protection. Together, this suggests that there may be a number
of attributes of permanent employment that provide incentives for these
workers to signal effort, over and above a general desire to signal underlying
productivity.
It is important to consider the effect of opportunities to obtain jobs that
offer employment protection as the overall impact of changes in employment
protection regulations may hinge on this. For example, easing unfair dis-
missal laws could lead to higher effort due to an increase in the risk of job loss
but may have a contrary effect if ‘protected’ jobs become scarcer, and hence
the opportunity to gain permanent employment is reduced. These types of
issues will become more important as the balance between temporary and
permanent workers changes, as is currently happening in many OECD coun-
tries under policies such as ‘flexicurity’.
This article uses a large novel personnel dataset to examine these issues.
Our dataset covers an entire public sector workforce in Australia, and we use
this to investigate changes in absence as workers move from temporary to
permanent contracts. The institutional setting is advantageous to the study of
employment protection effects on absenteeism. This is because the workforce
is characterized by jobs with limited employment protection, temporary con-
tracts and permanent contract workers who are very difficult to dismiss.
Furthermore, these contract types do not vary in a number of key dimensions
such as rates of pay, leave entitlements and other fringe benefits. Hence, we
argue that conditional differences in absenteeism between temporary and
permanent workers in our data are more likely to reflect variations in
employment protection and opportunities for promotion.1
Our data, unlike that used in previous research, are not survey based or
from a single firm but instead, cover a multi-organization and multi-plant
workforce. As a result, we provide an estimate of the impact of employment
protection across a range of occupations and organizational settings. The
334 British Journal of Industrial Relations
© 2012 John Wiley & Sons Ltd/London School of Economics.
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