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CPB Background document

Flexible employment in an international

perspective: An empirical analysis and some country-specific case studies

Krista Hoekstra Rob Euwals

Aleksandra Arsova Ernest Berkhout

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Contents

1 Introduction—5

2 FlexibleemploymentinEurope—6

3 Impactofeconomicandinstitutionalfactors—93.1 Descriptiveanalysis—93.2 Multivariateanalysis—133.3 Conclusion—14

4 Country‐specificcasestudies—154.1 Germany—154.2 France—164.3 Denmark—174.4 Sweden—184.5 Spain—194.6 UnitedStates—214.7 Lessonsfromthesesixcountries—22References—23

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1 Introduction

Flexibleemploymentconstitutesarelativelylargeandincreasingshareofthelabourmarketinmanycountries.Inthisstudy,weanalysetheextenttowhichthegrowthinflexibleemploymentcanberelatedtoglobaleconomictrendsandcountry‐specificinstitutions.Oneoftheadvantagesofflexibleemploymentisthatitallowsfirmstoreactmoreeasilytodemandshocks.Anotheradvantageliesintheaddedflexibilityitprovidestoworkerstodeterminetheirownworkinghours.Thepresenceofasignificantshareofflexibleemploymentdoes,however,presentseveralpolicyquestions,particularlyasitmayleadtosegmentationandinequalityinthelabourmarket,becauseworkerswithflexiblecontractsgenerallyenjoylowerjobandincomesecurity.Whendevelopingeffectivelabourmarketpolicyinthiscontext,itisthuscrucialtounderstandtheroleoflabourmarketandsocialsecurityinstitutionssuchasemploymentprotectionandemployerobligationsinaglobalisingworldcharacterisedbyrapidtechnologicalprogress.ThisisparticularlyimportantforacountrysuchastheNetherlandswheretheshareofflexibleemploymenthasincreasedstronglyoverthepast15years(StatisticsNetherlands).Inthisstudy,weapplyaquantitativeandaqualitativemethodologytoaddresstheresearchquestiononthereasonsbehindthegrowthofflexibleemployment.Thequantitativemethodmakesuseofpaneldatamodelsdevelopedintheeconomicliteraturetoaddressquestionsoneconomicgrowth,employmentandtheroleofinstitutions(seeOECDpublicationsontheseissuesinparticular).Althoughwemaylearnfromtheempiricalresults,thesemodelscannotfullyaddresscountry‐specificcircumstancesandpathdependence.Forthisreason,wealsoapplycountry‐specificcasestudiestodiscussdifferentformsofflexibleemployment,labourmarketoutcomesandinstitutionsforsixcountries:Germany,France,Denmark,Sweden,SpainandtheUnitedStates.Inthequantitativepartofthestudy,weuseOECDdatafor19Europeancountriesovertheperiod1997–2014.Wedefineflexibleemploymentastemporaryemploymentandself‐employment.Whilewepresentresultsfortheself‐employedwithoutemployeespopulation(i.e.,ownaccountworkers),wemostlyfocusonalltypesofself‐employmentbecauseoftheavailabilityofinternationallycomparabledata.1Furthermore,flexibleemploymentmayincludeothertypesofworkersinparticularcountries,suchaspart‐timeworkers,dependingontheinstitutionalset‐upandwediscussexamplesinthecountry‐specificcasestudies.TheNetherlandsisanoutlierintermsofflexibleemployment,astemporaryemploymentandself‐employmenthavebothincreasedsubstantiallyoverrecentdecades.Inmostothercountrieswheretheshareofflexibleemploymenthasincreased,eithertemporaryemploymentorself‐employmenthascontributedmosttothat.Theshareoftemporary

1 The OECD defines a job as temporary if it is understood by the employer and employee that the termination of the job is determined by objective conditions such as reaching a certain date, completion of an assignment or return of another employee who has been temporarily replaced. The OECD defines self-employment as the employment of employers, workers who work for themselves, members of producers' co-operatives and unpaid family workers. Own accounts workers are self-employed without personnel, in the Dutch context so-called zelfstandigen zonder personeel.

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employmenthasbeenrisingsubstantiallyinPortugalaswell,whileSpainstillhasthehighestshare.Self‐employmentisdeclininginmanycountries,butnotintheNetherlands,CzechRepublicandSlovakia.Therisesinthesecountriescannotbeexplainedbyourquantitativemethod,asourpaneldatamodelshowshardlyanystatisticallysignificantresults.Theonlyclearfindingisthatthedeclineinself‐employmentinmanycountriesisexplainedbyadeclineintheshareofagricultureintheeconomy.OurstatisticallyinsignificantresultsforinstitutionsarethereforeinlinewithEichhorstetal.(2016)andcontrarytothefindingofOECD(2004),whichfindsasignificantrelationbetweenemploymentprotectionreformandthechangeintheincidenceoftemporaryworkfor11countriesovertheperiod1990–2003.Incontrasttoourquantitativemethod,ourcountry‐specificcasestudiesdosuggestthatinstitutionssuchastheprotectionofpermanentjobs,rulesontheuseoftemporaryjobsandsocialsecuritycoverageofflexibleworkersareimportant.Thisisinlinewithempiricalevidenceatamoredisaggregatedlevel(OECD,2013).2Labourmarketinstitutionsdifferbetweencountries,andtheyleadtosegmentationandinequalityinthelabourmarketinmanycountries,asflexibleworkersfacemoreuncertaintyandarenotorlesswellcoveredbysocialsecurity(OECD,2014).Further,althoughclearlynotanewresult,Scandinaviancountriesturnouttohaveinstitutionsthatmitigatesegmentationandinequalityinthelabourmarket.Theremainderofthepaperisorganisedasfollows.InChapter2,wepresentcountry‐specificdevelopmentsintemporaryemploymentandself‐employment.Chapter3discussespotentialexplanationsforthesedevelopmentsandteststheminaquantitativeanalysis.InChapter4,wepresentcasestudiesforsixcountries.

2 Flexible employment in Europe

ThesharesandgrowthratesofflexibleemploymentvarysubstantiallybetweenEuropeancountries.Abouttwo‐thirdsofcountriesexperiencedariseintemporaryemploymentovertheperiod1997–2014,whileaboutone‐quarterexperiencedadecline.Ontheotherhand,thesharesofself‐employmentdeclinedintwo‐thirdsoftheobservedcountries.Inthischapter,wedescribethedataandhighlightspecificcountries.Theshareoftemporaryemploymenthasincreasedinmanycountriessince1997(seeFigure2.1).ThisincreasehasbeenparticularlyprofoundinPortugalandtheNetherlands,wheretheshareincreasedby9and8percentagepoints,respectively.InSpainandNorway,theshareoftemporaryemploymentdecreasedthemost(4percentagepoints),whileDenmark,FinlandandtheUnitedKingdomalsoexperiencedadecline.Spainstillhadthehighestlevel

2 OECD (2013) reports a significant relation between employment protection and self-employment on the basis of studies using individual-level data from the European Community Household Panel 1996–2001 (Kahn, 2010), sectoral-level data for 24 countries over the period 1995–2007 (Bassanini and Garnero, 2013) and firm-level data for Italy over the period 2001–2009 (Hijzen et al., 2013). The publication does not contain evidence on the basis of country-level data.

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oftemporaryemploymentin2014,however(20%),followedbytheNetherlands(18%)andPortugal(17%).Figure 2.1 Temporary employment in Europe, 1997–2014

Source: own calculations based on OECD. Data for Switzerland start in 1998.

Figure 2.2 Self-employment in Europe, 1997–2014

Source: OECD. The share of self-employment includes agricultural self-employment.

Theshareofself‐employmenthasdecreasedin13outofour19observedcountriessince1997(seeFigure2.2).ThedeclinehasbeenlargestinGreeceandPortugal,by10and9percentagepoints,respectively.Thedeclineintheshareofagricultureintheeconomiesinthesecountriesislikelytobeanimportantexplanation.However,togetherwithItaly,thesetwocountriesstillhadthehighestlevelofself‐employmentin2014.Theshareofself‐

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employmenthasincreasedinSlovakia(9percentagepoints),CzechRepublic(6percentagepoints)andtheNetherlands(4percentagepoints).Theoveralldeclineinself‐employmentislessapparentforself‐employedworkerswithoutemployees(seeFigure2.3).Incontrasttothetotalshareofself‐employed,theshareofself‐employedwithoutemployeesdeclinedinfewerthanhalfofthecountries.ThedeclinehasbeenlargestinHungaryandPortugal(6percentagepoints).ThelargestincreasesarestillfoundinSlovakia(8percentagepoints)andCzechRepublic(6percentagepoints);however,theincreasesinItalyandtheNetherlands(4percentagepoints)aresubstantialaswell. Figure 2.3 Self-employment without employees (own account workers) in Europe,

1997–2014

Source: OECD. Data for France start in 2003, Hungary in 1999, Italy in 1998, Portugal in 1998, Slovak Republic in 1998, Spain in 1999, Switzerland in 2005 and the United Kingdom in 2000.

Figure 2.4 Change in flexible employment in Europe, 1997–2014

Manycountriescanbecharacterisedbyagrowthintheuseoftemporarycontractsincombinationwithadecreaseintheuseofself‐employment(seeFigure2.4).TheNetherlandsisanoutlier,asbothtemporaryemploymentandself‐employmenthaveincreasedforbothtotalself‐employedandself‐employmentwithoutemployees.IntheNetherlands,the

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combinedshareoftemporaryemploymentandself‐employmentincreasedby12percentagepoints.Slovakiaexperiencedasimilargrowth;however,thelevelofflexibleemploymentremainsmuchhigherintheNetherlands(34%versus23%inSlovakiain2014).TemporaryemploymenthasgrownexceptionallyinPortugal,whileinSlovakiaandCzechRepublicself‐employmenthasincreasedsubstantiallyaswell.Thedevelopmentoftheshareofself‐employedwithoutemployeesislargelyinlinewiththeshareofself‐employment,withGreeceandItalyasexceptions.InGreece,theshareofself‐employmentdecreasedby10percentagepoints,whiletheshareofownaccountworkersremainedunchanged.InItaly,theshareofself‐employmentdeclined,whiletheshareofownaccountworkersincreased.

3 Impact of economic and institutional factors

Inmanycountries,firmsmayneedtobecomemoreflexiblebecauseoflargerandmorefrequenteconomicshocks.SeveralcountriessuchasItaly,France,Greece,SpainandPortugalhaveundergoneinstitutionalreforms,partlycausedbytheeconomiccrisis.Reformsoftenimplyawelfarestateretrenchment,whichmakesworkersmoreexposedtoeconomicshocks.Furthermore,globalisationandtechnologicalprogressareongoingtrendsthatdemandaresponsefromemployersandemployees.Firmsmaychoosetohiremoreflexiblelabourtoabsorbdemandshocks.Institutionssuchasemploymentprotectionandrulesonhiringflexibleworkersplayanimportantroleastheyinfluencethepossibilitiesforfirmstohiresuchworkers.Wefirstdiscusshoweconomictrendsandinstitutionsmayimpacttheshareofflexibleemployment.Second,wepresenttheresultsofamultivariateanalysisintheformofcountry‐specificpaneldatamodels.

3.1 Descriptive analysis

Theshareofflexibleemploymentinacountrymaydependonthebusinesscycle,economictrendssuchasglobalisationandtechnologicalprogressandinstitutions(e.g.,employmentprotectionlegislation).Here,wediscusssomepotentiallyimportantmechanismsandpresentdescriptive(bivariate)empiricalevidenceintheformofscatterplots.Theoverallimpactofthebusinesscycleonflexibleemploymentisunclearasdifferentmechanismsmayhaveoppositeeffects.Temporaryworkisaninstrumentforemployerstoadjustthesizeoftheirworkforcetofluctuationsindemand.Employeesontemporarycontractsandself‐employedworkerssuchasownaccountworkersareusuallythefirstpeopletobeoutofworkduringaneconomicdownturn,whileduringanupturnfirmsturntotemporarycontractsfirsttofillimmediatedemandforworkers(HolmlundandStorrie,2002;DeGraaf‐Zijl,2005;DeGraaf‐ZijlandBerkhout,2007).Thisfindingsuggestsapositiverelationbetweeneconomicgrowthandflexibleemployment.However,higheconomicgrowthalsoimprovesthenegotiationpositionofworkers,possiblyleadingtomorepermanentandlessflexiblecontracts.Inaddition,higheconomicgrowthmayinducepeople

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tobecomeself‐employedtotakeadvantageofgoodbusinessopportunities,whereasduringloweconomicgrowth,becomingself‐employedmaybeameanstoescapeunemployment. Figure 3.1 Economic growth and the change in flexible employment, 1997–2007

Note: cumulated economic growth over the period 1997–2007. We cumulate these years as most countries experienced economic growth over this period. The scatterplots illustrate the business cycle effect of an upturn. The correlation is significant for temporary employment and insignificant for self-employment at the 5% significance level. The figure for own account workers is not included in the publication because of the lower number of observations, but it shows an insignificant relation as well.

Figure 3.2 Economic decline and the change in flexible employment, 2008–2014

Note: cumulated economic growth over the period 2008–2014. We cumulate these years as most countries experienced economic decline or low economic growth over this period. The scatterplots illustrate the business cycle effect of a downturn. The correlations are statistically insignificant at the 5% significance level. The figure for own account workers is not included in the publication because of the lower number of observations, but it shows an insignificant relation as well.

Thedescriptiveanalysisshowsthattheimpactofeconomicgrowthonshareoftemporaryemploymentdiffersoverthebusinesscycle.Duringaperiodinwhichmostcountriesexperiencedaneconomicupturn(seeFigure3.1),relativelyhigheconomicgrowthseemstoberelatedtoadeclineintemporaryemployment.Thisresultsuggeststhatinsuchaperiodthenegotiationpositionofworkersisdominant.Duringaperiodinwhichmostcountriesexperiencedasubstantialeconomicdownturn,relativelyloweconomicgrowthseemstoberelatedtoanincreaseintheshareoftemporaryemployment.Butthecorrelationisnotsignificantlydifferentfromzero.Notethattheresultsdonotimplyasteadydeclineintemporaryemploymentoverthebusinesscycle,aseconomicgrowthinthescatterplotsismeasuredrelativetoothercountries.AlthoughGreece,forexample,experiencedastrongeconomicdecline,thishasnotresultedinasubstantialchangeintheshareoftemporary

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employment.Spain,ontheotherhand,alsoexperiencedaneconomicdecline;however,itsalreadyhighshareoftemporaryemploymentdroppedsubstantially.Hence,thestatisticsdonotseemtoindicatearelationbetweeneconomicgrowthandthegrowthrateofself‐employment(withandwithoutemployees).Globalisationandtechnologicalchangehavehadasubstantialimpactonlabourmarketsoverthepastfewdecades.Thesetwotrendshavestrengthenedeachotherastechnologicalprogresshasmadeiteasiertoreachtheglobalmarketplace,whiletheincreasedcompetitionfrominternationaltrademayhaveforcedfirmstofurtherinvestincost‐savingtechnology.Anotherchannelthroughwhichinternationaltradehasimpactedthelabourmarketisincreasedspecialisationforcountriesthathaveacomparativeadvantage.Ontheonehand,globalisationandtechnologicalchangemayhaveincreasedfirms’needforlabourflexibility.Ontheotherhand,technologicalchangeandglobalisationmayhaveincreasedtheneedforspecificknowledge,whichmayleadtomorepermanentemployment(TerWeeletal.,2010). Figure 3.3 Globalisation and the change in flexible employment, 1997–2014

Note: globalisation is operationalised by the change in the share of exports and imports in GDP. The correlations are not significant for temporary employment and self-employment at the 5% significance level. The figure for own account workers is not included in the publication because of the lower number of observations, but it shows an insignificant relation as well.

Figure 3.4 Technological change and the change in flexible employment, 1997–2014

Note: technological change is operationalised by the change in the share of households with access to a computer at home. The correlations are statistically insignificant at the 5% significance level. The figure for own account workers is not included in the publication because of the lower number of observations, but it shows an insignificant relation as well. Alternative measures for technological change such as ICT capital growth and ICT capital deepening show similar results.

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Onaverage,countriesthatexperienceastrongerincreaseininternationaltradeseeastrongerincreaseinflexibleemployment(seeFigure3.3).However,thisimpactisnotsignificant.TheNetherlands,forexample,experiencedarelativelystrongincreaseinglobalisationwithariseintheshareofexportsandimportsinGDPofabout40percentagepointsandanincreaseinflexibleemployment.Bycontrast,EasternEuropeancountriessuchasHungary,CzechRepublicandSlovakiaexperiencedamuchstrongerincreaseinexportsandimportsthantheNetherlands,buttemporaryemploymentdidnotincreasestronglyinthesecountries.Further,althoughself‐employmentincreasedinCzechRepublicandSlovakia,thisdidnothappeninHungary.Hence,whileglobalisationmayplayaroleintheincreaseinflexibleemployment,itdoesnotbyitselfexplainwhytheriseisexceptionallystrongintheNetherlands.WefindnoevidenceforarelationbetweenflexibleemploymentandtechnologicalprogressintheformofhomeaccesstoPCs(seeFigure3.4).Whilethemeasureweuseisnotperfect,measuressuchasICTcapitalgrowthandICTcapitaldeepeningshowsimilarresults.3WithrespecttotheNetherlands,technologicalprogressdoesnotexplainthestrongincreaseinflexibleemployment,asothercountrieshaveexperiencedstrongtechnologicalprogressaswell.Moreover,forourobservationperiod,theNetherlandsseemstohavestartedfromahighleveloftechnologicalprogress,whilecountriessuchasFranceandIrelandarecatchinguptothislevel.Thesecountriesdidnotexperienceastrongincreaseinflexibleemployment. Figure 3.5 Reforms in employment protection and change in flexible employment, 1997–2014

Note: employment protection legislation is operationalised by the change in the difference in the OECD EPL indicator for permanent and temporary jobs in the left-hand figure and by the change in the OECD EPL indicator for permanent jobs only in the right-hand figure. The correlations are statistically insignificant at the 5% significance level. The figure for own account workers is not included in the publication because of the lower number of observations, but it shows an insignificant relation as well.

Thewayinwhichfirmsfulfiltheirneedforemployeeflexibilityislikelytodependoncountry‐specificinstitutions(OECD,2013,2014).Insomecountries,thesizeoftheflexibleworkforcemaynotbeanissue,aspermanentworkerscanbelaidoffrelativelyeasily.Incountrieswherethisisnotthecase(i.e.,whereworkersenjoyahighdegreeofprotection),layingoffworkersmayberelativelycostly.Hence,firmsmayhiretemporaryandself‐employedworkerstoensureflexibility.Furthermore,flexibleemploymentmayalsobecheaperthanpermanentcontractsbecauseofemployerobligations.

3 See Van den Berge and Ter Weel (2015) for a similar application..

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Foraninstitutionalcharacteristicsuchasemploymentprotectionlegislation,wefindnoempiricalevidenceofarelationwithtemporaryemployment(seeFigure3.5).ThisisincontrasttoOECD(2004),whichreportsasignificantrelationbetweenemploymentprotectionreformandflexibleemploymentfor11countriesovertheperiod1990–2003.Forself‐employment,weconsidertheleveloftheprotectionofpermanentjobsinsteadofthedifferencebetweenprotectionforpermanentandtemporaryemployment.Theresultsarestatisticallyinsignificantaswell.Ourfocusonaninstitutionalcharacteristicsuchasemploymentprotectionlegislationisdrivenbytheavailabilityofinternationallycomparabledata.Preferably,wewouldhaveusedinformationonotherinstitutionalcharacteristicsaswell,suchassocialsecuritycoveragerulesandtaxincentivesforflexibleworkers.Theavailabilityofsuchinformationis,however,limitedandcollectionofsuchinformationistimeconsuming.

3.2 Multivariate analysis

Intheprevioussection,weinvestigatedwhetherflexibleemploymentisrelatedtothebusinesscycle,globalisation,technologicalprogressandinstitutions.Inthissection,weapplymultivariateanalysistodisentangletheeffectofthesepossibleexplanationsbyestimatingafixedeffectsmodelfortemporaryemploymentandself‐employment.Thefixedeffectsmodeldeliversconsistentparameterestimatesforthetruecausaleffectinthecaseofacorrelationbetweenthecontrolvariablesandcountry‐specificeffects.Thisisparticularlyimportantforpolicyvariables,aspolicyislikelytobeaffectedbyunobservedcountrycharacteristics.Therefore,identificationisbasedonchangesinthecontrolvariablesovertime,whichisadominantresearchstrategyintheliterature(e.g.,BassaniniandGarnero,2013).4Thecontrolvariablesincludeademographicvariable,namelytheagecompositionofthepopulationandthesectoralstructureoftheeconomy.Theotherindependentvariablesaremeasuresofglobalisation,technologicalprogressandinstitutions,asdiscussedintheprevioussection.5Themodelfortemporaryemploymentdoesnotpresentanystatisticallysignificantresults.Althoughthescatterplotsshowsomerelationforeconomicgrowth,theseresultsdonotcarryoverinthemultivariateanalysis.Theinsignificanceofagecompositionseemssurprisingastemporaryjobsmaybeusedtoscreenyoungworkers.Apotentialexplanationmaybethatthesecontractsarealsousedtoscreenmiddle‐agedworkersinthecaseofjob‐to‐jobmobility,whileolderworkersareclosetoretirementmaynotmindtemporaryjobs.Themodelforself‐employmentdoespresentstatisticallysignificantresultsforagecompositionandagriculture.Anagebetween50and65yearsoldseemstoberelatedtobeingself‐employed.Olderworkersusuallyhavemoreexperience,humancapital,financialmeansandnetworkingopportunitiestostartabusinessforthemselves.Hence,anageing

4 Variation over time is important for identification. Section 3.1 shows a substantial variation over time in the economic and institutional variables except for employment protection for permanent jobs (right-hand panel of Figure 3.5). 5 As additional independent variables, we tried the female participation rate and unemployment rate; however, both variables were highly insignificant.

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populationmayleadtoalargershareofpeopleworkingforthemselves.Furthermore,self‐employmentisrelatedtotheshareofagricultureinGDP.Adecliningshareofagricultureseemstocontributetoadecliningshareofself‐employment.Thedefinitionofself‐employmentincludesunpaidfamilyworkers,whichareparticularlyimportantinfarming.Theresultsfortotalself‐employeddonotapplyforself‐employedwithoutemployees.Wefindnostatisticallysignificantresultsforthismodel. Table 3.1 Fixed effects model for the share of flexible employment, 19 countries, 1997–2014

Temporary employment Self-employment Self-employment without employees

Age 15–24 -0.10

(-0.35) 0.10

(0.46) -0.22

(-0.89) Age 50–64 -0.10

(-0.31) 0.80** (2.33)

0.30 (0.93)

Age 65+ 0.53 (1.24)

0.05 (0.20)

0.28 (1.03)

Agricultural output 0.49 (1.26)

1.13** (2.65)

0.85 (1.44)

Services output 0.05 (0.39)

-0.09 (-0.91)

-0.13 (-1.24)

GDP growth 1997–2007

-0.08 (-0.87)

0.02 (0.22)

0.10 (1.13)

GDP growth 2008–2014

-0.08 (1.51)

0.04 (0.40)

-0.09 (-1.08)

Globalisation 0.02 (1.04)

0.03 (1.27)

0.02 (0.54)

Technological progress -0.01 (-0.16)

0.03 (0.91)

0.02 (0.40)

Employment protection Perm. vs. temp. contract

-0.00 (-0.19)

Employment protection Perm. contract

0.01 (0.45)

0.01 (0.39)

Year dummies yes yes yes N 341 342 318 Adj. R2 0.24 0.44 0.22 Note: t statistic in parentheses, * p<0.10, ** p<0.05, *** p<0.01 Demographic variables such as age 15–24 give the share of this group in the population, with age 25–49 as the reference category; Sectoral output such as agricultural output gives the share of this sector in total output, with industry as the reference category; Globalisation is operationalised by the change in the share of exports and imports in GDP, while technological change is operationalised by the change in the share of households with access to a computer at home. Employment protection legislation is operationalised by the difference in the OECD EPL indicator for permanent and temporary jobs for temporary employment and by the OECD EPL indicator for permanent jobs for self-employment.

3.3 Conclusion

Overall,wefindlittleempiricalevidencefortheimpactofeconomicandinstitutionalfactors.Wefindsomeevidencethatthedeclineinagriculturaloutputandagecompositionmatterfortheshareofself‐employment.Wefindnoevidenceforanimpactofglobalisation,technologicalprogressandinstitutions;theempiricalresultsarehighlyinsignificantinallspecifications.Globalisationandtechnologicalprogressarecorrelatedwithacorrelationcoefficientof0.2.Includingonlyoneofthesevariablesdoesnotleadtosignificantresults.Thisdoesnotmeanthatthesefactorsarenotimportant.Themeasureforglobalisationiscommonintheeconomicliterature;however,technologicalprogressishardtomeasure,

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whileinstitutionsarenotoriouslydifficulttocomparebetweencountriesandtheytendtoshowlittlevariationovertime.Furthermore,country‐specificcircumstancesandpathdependencemayplayanimportantrole,andthesearehardtocaptureinastatisticalanalysis.Forthisreason,wedelvefurtherintotheissueofinstitutionsinanumberofcountry‐specificcasestudiesinthenextchapter.

4 Country-specific case studies

Countriesdifferintermsofeconomicdevelopment,labourmarketinstitutionsandlabourmarketoutcomes.Inthischapter,wechoosesixcountriestodescribedevelopmentsinflexibleemploymentandtheroleofpolicy.WeselectGermany,France,Denmark,Sweden,SpainandtheUnitedStatesonthebasisoftheirrelevancefortheNetherlands,theirlabourmarketattributesandtheavailabilityofinternationaleconomicsresearchontheseissues.Thecountry‐specificcasestudiesarebynomeanscomprehensive,asthenumberofrelevantaspectspercountryisexhaustive.OECD(2013,2014)providesamorecomprehensiveoverviewfromtheaspectofemploymentprotection,butnotatthecountrylevel.Ourcountry‐specificstudiesnonethelessgiveanimpressionofthecomplicatedinteractionsbetweenlabourmarketinstitutionsandlabourmarketoutcomes.

4.1 Germany

TheshareoftemporaryemploymentinGermanyslightlyincreasedfrom10%oftotalemploymentin1997to12%in2014(OECD,calculationsCPB).Meanwhile,theshareofself‐employmentremainedsteadyataround11%oftotalemployment(OECD).Theshareofownaccountworkers(self‐employedwithoutemployees)remainedsteadyataround5%(OECD,calculationsCPB),whichislowerthanthelevelsinmostotherEUcountries.InGermany,self‐employedarenotcoveredbysocialsecurity(Eurofound,2009). Therulesonflexibleemploymentwererelaxedsubstantiallyintheperiod2003–2005bytheso‐calledHartzreforms.Thesereformsfundamentallychangedtheroleofpublicandprivateemploymentservicesaswellastherightsanddutiesoftheunemployed.Tostimulatelabourdemand,restrictionsontheuseoftemporarycontracts,temporaryagencyworkandso‐called‘mini‐jobs’wererelaxed.Furthermore,start‐upsubsidiesforself‐employmentwereintroducedtoactivatetheunemployed.

Thereformswerefollowedbyadecreaseinunemployment:fromarelativelyhigh11%in2005to5%in2014.6Afirstimportantaspectisthereformofpublicservices(JacobiandKluve,2006).KlingerandRothe(2011)concludethatthereformsincreasedthematchingefficiencyofbothshort‐termandlong‐termunemployed,whileSchmidandModrack(2008)statethatthepositionofhard‐to‐placepeoplehasnotimprovedinthenewsystem.

6 OECD harmonized unemployment rate, https://data.oecd.org/unemp/harmonised-unemployment-rate-hur.htm.

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AsecondimportantaspectofthesuccessofGermanlabourmarketreformisthedecreaseinunitlabourcosts.Partofthisdeclineisexplainedbythemoderationofwagegrowth,whileanotherpartisexplainedbyinternallabourhoardingduetoworkingtimeaccountsandtemporaryreductionsinworkingtimeinthecaseofademandshock(so‐calledKurzarbeit).Flexibleformsoflaboursuchtemporaryagencyworkandmini‐jobsalsoplayanimportantrole(RinneandZimmermann,2013).Thefivemillionmini‐jobs(geringfügigeBeschäftigung)createdareauniqueelementoftheGermanlabourmarket.Amini‐jobisajobwithawagebelow€450permonthandnosocialsecuritycoverage,implyingthatsuchworkersarelesswellinsured.Since2015,Germanyhasagreedaminimumhourlywageof€8.50;hence,themonthlyhoursworkedinamini‐jobcannotbemorethan53hours.Thenumberofmini‐jobshasrisensteadilysince2006becausemoreemployeeswitharegularjobalsohaveamini‐job.Thenumberofworkersrelyingonmini‐jobsonlyhasremainedratherstable.Astotalemploymentincreased,theshareofworkersrelyingonmini‐jobsonlydecreasedfrom17%in2006to14%in2015.Workersoverrepresentedinmini‐jobsonlyarewomen,youngpeople,theretired,unskilledworkersand(skilled)supportworkers.

4.2 France

Theshareoftemporaryemploymentintotalemploymentincreasedfrom11%in1997to14%in2014(OECD,calculationsCPB).Theshareofself‐employmentwasstableoverthisperiodatabout10%ofemployment,whiletheshareofself‐employedwithoutemployeesincreasedslightlyfrom6%in1997to7%in2014(OECD,2016).InFrance,temporarycontractscanbeusedtoreduceadministrativeandlegalprocessesthatareaconsequenceofthehighemploymentprotectioninpermanentcontracts(BlanchardandLandier,2002).Theuseoftemporarycontractsissubjecttorules.First,thedurationislimitedtoamaximumof24monthsandcannotberenewed.Second,temporarycontractscanonlybeappliedinoneofthefollowingsituations:i)toreplaceanemployeeonleave,ii)inthecaseofatemporaryincreaseinactivity,iii)forseasonalactivityoriv)tofacilitateemploymentfortargetedgroupssuchasyoungpeopleorthelong‐termunemployed.Thelistoftargetedgroupshasincreasedovertimeaseachgovernmenthasaimedtoincreaseemploymentforothergroups,oftenincombinationwithsubsidiesandtraining.Amongemployeesaged15to24,theproportionwithatemporarycontractismorethanhalf,wellabovetheEuropeanaverage.Bycontrast,forotheragegroups,France’sproportionoftemporarycontractsisaboutequaltotheEuropeanaverage(Eurofound,2014).Self‐employmentispartlyconsideredtobeanoutsideoptionforemployerstoavoidthestringentrulesrelatedtohiringpermanentworkers.So‐called‘umbrellacompanies’actasapayrollserviceforfreelancersandotherself‐employed.Thenumberofthesecompanieshasincreasedandtheirworkersaredefactoconsideredtobeemployees(Eurofound,2009).Self‐employeddonotenjoymandatorysocialsecuritysuchascollectiveunemploymentinsurance,sicknessbenefits,paidleaveorpaidovertimeandhavelowerhealthcareandpensionsbenefits.Inthecaseofanumbrellacontract,aself‐employedworkernegotiatesa

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serviceprovisionwithabusinesscustomerandthensignsanemploymentcontractwithanumbrellacompany.Theumbrellacompanyispaidafeebythecustomerandinturnpaystheemployeeafterdeductingadministrativefeesandsocialsecuritycontributions.Soalthoughumbrellaworkersaregenerallycoveredbysocialsecurity,theydonothavethesamelevelofprotectionaspermanentworkers.TheFrenchlabourmarketisconsideredtoberigid,leadingtoalowlevelofinvestmentandahighunemploymentrate.Theyouthunemploymentrateishigh,andwhenyoungpeopleareemployed,itismostlyontemporarycontracts.Currently,Franceisgoingthroughlabourmarketreform.

4.3 Denmark

Temporaryemploymentdecreasedfrom10%in1997toaninternationallylowshareof8%in2014.Theshareofself‐employmentandofself‐employedwithoutemployeesisrelativelystableandlowat9%and5%,respectively(OECD,2016).Intheinternationalpolicyliterature,thecountryispresentedasamajorexampleofthe‘flexicurity’model.TheDanishmodelisoftenrepresentedasatrianglewithlowemploymentprotectionforpermanentworkers,ahighlevelofsocialsecurityandactivelabourmarketpolicy(Andersen,2012).Forfirms,itisrelativelyeasytoshedemployees:noticeperiods,severancepaymentsandproceduralinconveniencesarelimited.Theunderlyingreasonforthislowemploymentprotectioncanbefoundintheeconomicstructure,astherearemanysmallfirmsforwhichitisburdensomeandcostlytohavestrictemploymentprotection.Thesafetynetconsistsofunemploymentinsuranceandsocialassistance.UnemploymentinsuranceisvoluntaryandhalfofDanishworkersparticipateinoneoftheseinsurancefunds.Unemploymentinsurancefundsaresubsidisedbythenationalgovernment,andthissubsidyincreasesinthecaseofhighunemployment.Theunemploymentbenefitseemsgenerous,namely90%ofthepreviouswage;however,thereisarelativelylowcapofabout€22,000annually.Ahighlevelofactivationisessentialtocombatmoralhazardandmaintainsearchincentives.Theactivationitselfcanbeofferedinmanyformsfromshortcounsellingandassessmentprogrammestojobtrainingandwage‐subsidisedjobs.Temporaryworkersarecoveredbythesamelegislationandcollectiveagreementsaspermanentworkers.Despitetherelativelylowandstableshare,somesegmentationseemstotakeplace,asloweducatedandfemaleworkershavesuchcontracts.Aboutone‐thirdofworkerswithatemporarycontractchoosethisformofemploymentastheycannotfindapermanentjob(Bredgaardetal.,2009).ThisisarelativelylownumbercomparedwiththeNetherlands,wheremanyflexibleworkerspreferapermanentjob(DonkervanHeeletal.,2013;CBS,2016).Self‐employmentismostlyavoluntarychoicemadebyeducatedmen.Itismostwidespreadinagriculture,fishing,constructionandservices,whichhaveatraditionforskilledworkersmovingintoself‐employmentaspartoftheircareer.Theyareeligibleforthesametypesofsocialsecurity(unemploymentbenefits,sicknessbenefitsandleavebenefits)asregular

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workers.Insomecases,specialrulesmayapplyduetotheparticularcharacterofthestatusofself‐employed.Thisistrueforunemploymentbenefits,whereself‐employedcanvoluntarilyjoinanunemploymentinsurancefund(andtwospecialfundsforself‐employed)andreceiveunemploymentbenefitsincasetheyhavetoclosedowntheirbusiness.Self‐employedareeligibleforpublicsicknessbenefits(includingmaternityandpaternitybenefits)aftertwoweeksofsickness,andtheymaytakeoutanadditionalinsurancefundthatallowsthemtodrawsicknessbenefitsfromthefirstorthethirddayofillness/leave.Denmarkisaprototypeofauniversalwelfarestateinwhichself‐employedworkershaveaccesstosocialsecurity.Employershavelittlereasontosearchforalternativestopermanentcontractsasthelevelofprotectionislowanywayandthecostsofsocialsecuritycannotbeavoidedbyhiringself‐employed.PartofthesuccessoftheDanishmodelseemstobetherelativelylowshareofinvoluntarytemporaryworkers,whichhintsatarelativelylowlevelofsegmentationinthelabourmarket.

4.4 Sweden

Theshareoftemporaryemploymentincreasedfrom13%in1997to16%in2014.Meanwhile,theshareofself‐employmentwasstableoverthisperiodatabout10%ofemployment.Theshareofself‐employedwithoutemployeesfellfrom6.5%in1997to5.5%in2014(OECD,2016).Temporaryemploymentbecamelegalatthebeginningofthe1990sandhasincreasedsince.Youngpeople,womenandnon‐westernmigrantsaremorelikelytoworkundertemporarycontracts(AnderssonandWadensjö,2004).Temporarycontractsarepermittedinanumberofwell‐definedcasesonly,butthereisnolimittothenumberofsuccessivecontracts.AsintheNetherlands,Swedenhasahighlevelofprotectionofpermanentcontractsandarelativelylowlevelofprotectionoftemporarycontracts(EuropeanCommission,2015;IMF,2015).Swedenhasasystemofdecentralisedcollectivelabouragreements,whichapplytobothpermanentandtemporarycontracts(AnderssonandWadensjö,2004).Becauseoftherelativelyhightransitionrateoftemporarytopermanentemploymentandlowlong‐termunemploymentrates,thesegmentationofthelabourmarketdoesnotposearealconcern(IMF,2015).Still,unemploymentratesarehigherforyoungpeople,thelow‐skilledandimmigrants(EuropeanCommission,2015;IMF,2015).Self‐employedaremoreoftenmen,olderandnon‐westernmigrants(AnderssonandWadensjö,2004;Eurofound,2009).ThedualSwedishtaxsystemdistinguishesbetweenincomefromemploymentandearnedincomefromself‐employmentinanunincorporatedbusiness.Bothemployeesandself‐employedpayincometaxandpayrolltaxes(socialsecuritycontributionsforinsuranceforpensions,parentalleave,unemploymentandsickness).Payrolltaxesfrombusinessareslightlylower.Incorporatedbusinessespaycapitalincometaxationondividends.Taxevasionbehaviourispreventedbecausedividendsaboveacertainlevelaretaxedasincome(Stenkula,2009).Overall,thetaxsystemdoesnotseemtobeanimportantpushorpullfactorinto/fromself‐employment.

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InSweden,self‐employedare(partly)coveredbysocialsecurity.Theyreceivesickbenefitsafterawaitingperiodof1,3or30days.Thebenefitisbasedontheirnetrevenue,butmaynotexceedthebenefitofregularemployeeswiththesamekindofworkassignment(Eurofound,2009).Withrespecttounemploymentbenefits,self‐employedarecoveredbyamandatorybasicinsuranceandtheycanchoosetovoluntarilyjointheearnings‐relatedinsurancefund(Eurofound,2014).Swedenisanexampleofawelfarestatewithauniversalarrangement,asself‐employedare(partly)coveredbysocialsecurity.Atthesametime,disadvantagedgroupssuchastheyoung,womenandmigrantsareconfrontedwiththelowerprotectionoftemporaryjobs.Thishints,ontheonehand,tosomesegmentationofthelabourmarket;ontheotherhand,segmentationalsoseemslimitedbecauseoftherelativelyhightransitionratefromtemporarytopermanentemployment.

4.5 Spain

Theshareoftemporaryemploymentdecreasedfromahighlevelof24%oftotalemploymentin1997toastillcomparativelyhighlevelof20%in2014(OECD,calculationsCPB).Meanwhile,theshareofself‐employmentdecreasedfrom24%to18%oftotalemployment(OECD).Theshareofownaccountworkers(self‐employedwithoutemployees)fellfrom13%in1999to10%in2010,butthishasrisenslightlyinrecentyears(OECD,calculationsCPB).Duringthe1980s,labourmarketflexibilitywasachievedbyliberalisingtherulesontemporaryemployment,whichledtoahighlysegmentedlabourmarket.Comparedwithpermanentjobs,whichhavetraditionallybeenhighlyprotected,temporaryjobsbecameextremelyvulnerable.Thishasnotalwaysbeenthecase.Historically,theSpanishlabourmarkethasbeencharacterisedbyarigidsystemofcollectivebargaining.Thefirstmajorreformwasimplementedin1984,aimingtostimulatetheuseoftemporarycontracts(whichwereheavilyregulatedatthattime)whilemaintaininghighprotectionforpermanentcontracts.7Asaresult,theuseoftemporarycontractsmorethandoubledbetween1987and1992.Thiseffectwasfarmorethanintended;hence,inthe1990s,reversedpolicieswereundertaken.Thedismissalofpermanentcontractswasrelaxedandamoreflexibletypeofpermanentcontract(withlowerfiringcostsandlowersocialsecuritycontributions)wasallowedfor‘weaker’groups.8Thelatterpolicywasnotverysuccessful,however;therefore,thecountryremainedanextremecasewhereuntil2006temporarycontractswereatleasttwiceascommonasinotherEuropeancountries.9Spainexperiencedanotherimportantshiftfollowingtheeconomiccrisesfrom2007onwards.Theshareoftemporarycontractsdecreased,butnotbecauseofthebetter

7 The positive employment growth from this two-tier type of labour reform is characterized by Boeri and Garibaldi (2007) as a ‘honeymoon effect’: positive, but not forever lasting. 8 This type of contract was allowed for young people (aged 18–29), elderly unemployed (age 45+), the disabled, long-term unemployed (>12 months) and workers on a temporary contract before. 9 Except for Poland and to some extent Portugal.

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functioningofthelabourmarket.Becauseofthesegmentationbetweeninsiders(permanentcontractswithhighprotection)andoutsiders(fixed‐termcontractswithlowprotection),theeffectsofthecrisishitparticulargroupsdisproportionally.Notrenewingfixed‐termcontractsresultedinextremelyhighunemployment.Duringthecrisisyears,overtwomilliontemporaryjobswerelost(40%ofalltemporaryjobs)comparedwithonemillionpermanentjobs(9%).Manyyoungpeoplebecameoutsidersbydefault:youthunemploymentreached55%in2013,withoverallunemploymentat26%.Halfoftheunemployedwerebelowtheageof25,whileanotherquarterwerebetween25and34yearsold.AccordingtoJansenetal.(2016),recentpolicyischaracterisedbythequestforbalanced‘intermediate’typesofcontracts.Theaimistoraiseinternalinsteadofexternalflexibility,improvingtheprocessofwageadjustmentsandthuscompetitiveness.Therefore,the2012policyreformtriedtoliberalisecollectivebargaining:firm‐levelagreementshavebecomethepriorityoversector‐levelagreementsandthetemporaryopt‐outofcollectiveagreementshasbecomepossible.Smallandmedium‐sizedfirmsareallowed(andfiscallystimulated)touseamoreflexibletypeofpermanentcontractwithaprobationperiod.Forstandardpermanentcontracts,firingcostsarenowmaximisedat24monthsofwages.Sofar,theresultsarenotclearlyvisible,probablybecauselabourcourtrulingshaveinterferedandpartlyundonetheimpactofthereforms(Jansen,2015).Theroleofself‐employmentseemstobelimitedinSpain;however,the2percentagepointriseinownaccountworkersbetween2011and2013mayreflectachangingpattern.Employerscanachieveflexibilityintheirworkforcebyusingtemporarycontractsandintermediatecontracttypesforspecialgroups.Furthermore,self‐employedworkersarepartlycoveredbysocialsecurityastheyhaveaspecialsicknessschemeandvoluntaryunemploymentinsurance(Eurofound,2009).OutsideoptionsforlabourmarketflexibilisationinSpainduringtheperiod1997–2015includedinvoluntarypart‐timeworkersandmigrants.ComparedwithotherEUcountries,Spainhasseenasharpincreaseininvoluntarypart‐timeworkers10andaspectacularincreaseinthenumberofforeignworkers.11Insummary,theSpanishexampleshowsthattheliberalisationoftemporarycontractshasledtoastronglysegmentedlabourmarket,whichinparticularcanleadtoextremeemploymenteffectsduringacrisis.Onceinplace,itisthenhardtointroduceeffectivepolicytoreducethisstrongsegmentation.

10 From 1.6% of all part-time workers in 2001 to 10.3% in 2014 (OECD). 11 In 2008, no less than 14% of the Spanish workforce consisted of foreigners. Post-crisis, this rate has dropped to 11%, in the same order as the United Kingdom and Germany (Eurostat, lfsa_egan).

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4.6 United States

Temporaryandself‐employmenthavebeenratherstableoverrecentdecades.Temporaryemploymentremainedatabout4%intheperiod1997–2005,whileself‐employmentdecreasedslightlyfrom7.4%in2000to6.5%in2014.12Employersgenerallydonotneedtoavoidpermanentcontractsasthelevelofprotectionandlabourcostsduetocollectivesocialinsurancearerelativelylow.Still,eveninsuchaliberallabourmarket,segmentationplaysarole.Theeconomicliteratureandpopularpressdiscussatypicaljobsandtheworkingpoor.Employershaverelativelyfewobligations.ThelevelofemploymentprotectionintheUnitedStatesisoneofthelowestamongdevelopedcountries.Hence,hiringaworkerdoesnotimplyalotofriskastheemployercanfireaworkeratwillinthecaseoflowproductivityoradeclineinproductdemand.Thisisprobablyamajorexplanationforthelowleveloftemporaryemployment.Nevertheless,thereisamarketfortemporaryworkingagencies,andemployershireonatemporarybasisaswell(AutorandHouseman,2010).Moreover,employershavesomeobligationsintheliberalUSlabourmarket.Experienceratingimpliesthatemployerspayhigherpremiumsinthecasetheycausemanyworkerstojointheunemploymentcompensationscheme.Hence,employershavesomefinancialresponsibilityfortheemploymentprospectsoftheirworkers.Whiletheexperienceratingisimperfect,itdoesaffectemployers’behaviourinthesensethattheyfirefeweroftheirworkers(Feldstein,1976,AndersonandMeyer,2000).Theexperiencerating,however,doesnotseemtoleadtoaneconomicallysignificantlevelofavoidancebehaviouramongemployers.Thelevelofself‐employmentislow;inparticular,native‐bornwhitesofalllevelsofeducationalattainmentareself‐employed.TheliberalUSlabourmarketclearlydoesnotpreventsegmentation.Differencesbetweenjobsoccurduetovoluntaryprovisionsbyemployers.Permanentfull‐timejobsgenerallyincludehealthinsuranceandpensionbenefits.13Nonstandardjobsincludingon‐callwork,temporaryworkagencyjobs,independentcontractingandevenpart‐timeworkinconventionaljobsrarelyoffersuchprovisions,whilewagesaregenerallylow.Theshareofatypicaljobsintotalemploymentseemsstableovertimeastheratesoftemporaryandpart‐timeemploymentaresteady(Kallebergetal.,2000).Furthermore,about6%oftheworkforcewasclassifiedas‘workingpoor’in2014andthesepeoplemostlyhaveanatypicaljob(USBureauofLaborStatistics,2016b).Bothatypicaljobsandtheworkingpoorareconcentratedamongtheloweducated,non‐whites,non‐nativebornandwomen.

12 Including incorporated self-employed leads to figures that are about 50% higher, but also including this group gives a slight decline in the self-employment rate over time (US Bureau of Labor Statistics, 2016a). 13 The uninsured rate was stable until 2013 at about 14% and declined to about 11% in 2014 (US Census Bureau, 2015).

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4.7 Lessons from these six countries

Afirstmajorlessonfromthecasestudiesisthatinstitutionsmatter.Increasingflexibilityinalabourmarketwithstringentemploymentprotectionforpermanentjobsbyliberalisingrulesonflexibleemploymentleadstomoresuchemployment,whichhappened,forexample,inSpain.Thisinturnincreasessegmentationandinequalityinthelabourmarket,asflexibleworkersfacemoreuncertaintyandtheyareoftenlesswellinsuredastheircareersaredisrupted.Thesharedroppedagainduringthecrisis,whentemporarylabourrelationswereespeciallyheavilyaffected.Althoughnotdescribedinourcasestudies,countriessuchasItalyandPortugalshowsimilar(butlessextreme)developments,leadingtosimilarpolicydiscussions.Germanyallowsjobswithawageoflessthan€450permonthtobeexemptedfromsocialsecurity,andthesejobshavealsogainedpopularity.Asecondlessonisthataliberallabourmarket,withalowlevelofprotectionforpermanentworkers,isnoguaranteeagainstsegmentationandinequality.InacountrysuchastheUnitedStates,employersdonotneedtobehesitanttohireworkersatthelowerendofthelabourmarketonthebasisofapermanentcontractastheyhavefewobligationsanditisrelativelyeasytofireunproductiveworkers.Further,althoughthereislittleinequalityinthesensethatmanyloweducatedindividualsareemployed,theystillhavelessaccesstoemployer‐providedinsuranceandprovisionssuchashealthinsuranceandpensionplans.AthirdlessonisthatScandinaviancountries,inparticular,seemtosucceedinreducingsegmentationandinequalityinthelabourmarket.SwedenandDenmarkhaverathersimilaruniversalsocialsecurityinstitutionswithahighlevelofinsuranceandtheinclusionofself‐employed.Intermsofemploymentprotection,thecountriesare,however,remarkablydifferent,aspermanentworkersinSwedenexperienceahighlevelofprotection,whereasthoseinDenmarkexperiencelittleprotection.Accordingtotheempiricalliterature,thereseemstobemoresegmentationandinequalityintheSwedishlabourmarketthaninDenmark(althoughstilllessthaninothercountries);however,itishardtorelatethistooneinstitutionalfactorsuchasemploymentprotectionlegislation.Thischaptershowsthatcountry‐specificcontextualcircumstancesmatterfortheimpactofinstitutionsonthefunctioningofthelabourmarket.Thisalsoimpliesthatcopyingasuccessfulpolicyinonecountryisnoguaranteeofsuccessinanother.Therefore,althoughcountriesmaylearnfromeachother,everycountrywillhavetofinditsowndirectionforpolicyreformonlabourmarketopportunities,flexibleemploymentandsegmentationandinequalityinthelabourmarket.

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