Laziness Or Liberation?

Labor Market Policies and Workers Attitudes Towards Flexibility

Christopher J. Anderson
Department of Government
Cornell University
christopher.anderson@cornell.edu

Lena Hipp
School of Industrial and Labor Relations
Cornell University
lh247@cornell.edu

Abstract
This paper examines the relationship between labor market policies (dismissal protection
and unemployment benefits) and workers willingness to be flexible (e.g., accept lower
pay or learn new skills) in order to remain gainfully employed. Drawing on the policy
feedback literature, we argue that these policies not only influence actual labor market
dynamics but also affect employees attitudes and that attitudinal flexibility is a key
precondition for the efficient functioning of labor markets. In contrast to economists who
have examined the direct effects of policies on employment outcomes with mixed results,
we thus focus on the indirect effects of labor market policies on attitudes related to labor
market behavior. Using multilevel modeling techniques, we analyze individual level data
collected by the International Social Survey Program (ISSP) in 2005 in combination with
country level information from the Organization for Cooperation and Economic
Development (OECD). The main findings of this paper are: First, employment regulation
and unemployment benefits indeed make a difference in employees willingness to be
flexible; and second that the relationships between the strength of dismissal protection
and the generosity of unemployment benefits on one hand and employees attitudes
towards employment flexibility on the other are non-linear. Substantively, this strongly
suggests that there can be either too little or too much social protection. We ascribe our
findings to different sources of work motivation. Extrinsic motivations, such as financial
incentives, seem to be equally important for attitudes towards flexibility as intrinsic
motivations that can only be developed if a minimum level of job security exists.
Paper prepared for presentation at the Annual Meeting of the
American Political Science Association, Washington, DC, September 2-5, 2010.
DRAFT
COMMENTS WELCOME

Since the mid-1980s, policy makers in the industrialized world have increasingly sought
to combat mass unemployment through deregulation. Specifically, to reduce the
inflexibility and sclerosis of European labor markets, reforms have aimed at
facilitating the hiring and dismissal of workers and increasing employees incentives to
quickly transition to a new job after a lay-off through cutbacks in unemployment
insurance and the simultaneous increase in funding for work-force programs. While a
sizable literature in economics has investigated the effects of these policies and changes
in them on actual labor market behavior i.e., unemployment duration and labor market
transitions (e.g., Kahn 2007; Esping-Andersen and Regini 2000; Siebert 1997; Lazear
1990) the causal chain by which they affect these outcomes has remained somewhat
murky and mostly exists in the realm of economic theory.
In this paper, we develop a model of labor market behavior rooted in the notion
that policies affect behaviors via attitudes, and that attitudinal flexibility is thus a key
precondition for the efficient functioning of labor markets as conceived by policymakers.
We therefore ask how labor market policies specifically, dismissal protection and
unemployment benefits affect what people think about work. Do stringent levels of
dismissal protection and generous unemployment benefits make workers idle and lazy?
Or, do they make them more willing to sacrifice parts of their income or accept longer
working hours in order to get or keep a job?
By addressing these questions empirically, we take a first step toward
understanding the widely neglected impact of public policies on attitudes towards
flexibility. Drawing on recent literature on policy feedback (e.g., Mettler and Soss 2004
for review ; Soss 1999; Campbell 2003; Kumlin and Rothstein 2005; Kumlin 2004) and

1!

the ambiguous findings of economists on the effects of dismissal protection and

unemployment benefits on employment performance (e.g., Blanchard and Landier 2002;
Bertola et al. 2007; Bertola 1999; Cahuc and Postel-Vinay 2002; Kugler and Pica 2008),
we argue and show that a) labor market policies not only have an impact on the
unemployed but also affect the attitudes of those who are currently employed and, b)
policy effects on attitudes towards employment flexibility are non-linear that is, there is
neither a purely positive nor a purely negative relationship between the level of
protection and employees attitudes towards flexibility. Put simply, there can either be
too little or too much of a good thing.
The paper is organized as follows. After defining employment flexibility and
introducing the notion of policy feedback, we review the existing literature on effects of
labor market policies and employment performance, providing a rationale for why it is
important to focus on attitudes rather than actual behaviors and the effects of labor
market policies should also impact the employed and not only the unemployed. The
hypotheses developed in this second part will then be tested using a dataset that combines
individual-level data on attitudes from the 2005 wave of the International Social Survey
Program (ISSP) with national-level information on welfare states from the Organization
of Economic Cooperation and Development (OECD). The results of these multi-level
analyses are discussed in the third part of the paper. The concluding section presents the
limitations of the paper and directions for further research.

2!

Public Policies and Employment Flexibility: A Case for Policy Feedback?

To describe employees attitudes towards labor market flexibility, we use the term
employment flexibility and define it as the willingness and ability of individuals to
adapt to new or changing labor market requirements. That is, for example, being willing
to learn new skills or travel a long distance to go to work and accept temporary
employment or income losses in order to become or remain employed. We use the term
employment flexibility to delineate this psychological, individual level concept from the
more commonly employed and related term labor market flexibility, which denotes the
efficiency of labor markets in coordinating the supply of and demand for workers. While
firms and the economy at large benefit from a flexible workforce, accepting a job with
lower pay, learning new skills, or commuting a longer distance to work can be unpleasant
and costly for the individual worker.
For several reasons, we focus on individuals who are currently employed. These
are related to the fact that, in the industrialized countries, the share of the employed
population is disproportionately greater than the share of the unemployed population.
Simply put, there are many more employed than unemployed people. How labor market
policies affect these populations matters to employers: dismissal protection and
unemployment benefits are likely to affect how and how much individuals work, and how
they behave when at risk of becoming or actually becoming unemployed. This matters to
policymakers, too, as these behaviors affect economic output, labor market dynamics,
and the demands that voters in democracies make with regard to social protection.1

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1

The practical reason for focusing on employed rather than unemployed individuals is that sample surveys
contain many more employed than unemployed respondents, thus facilitating the systematic analysis of
policy effects on attitudes.

3!

To understand more systematically how labor market policies matter, we position

our research project in a growing stream of scholarship in political science that has
investigated why and how government programs and public policies affect individual
behaviors, like civic and political engagement (Soss 1999; e.g., Campbell 2003; Kumlin
and Rothstein 2005; Mettler and Soss 2004; Mettler 2002) or social behavior (Anderson
2009). This research program on so-called policy feedback effects offers a useful
roadmap for our investigation. The general notion underlying studies on policy feedback
is that citizens (and in our case, workers) are nested within particular policy regimes, and
that the designs of policies shape peoples attitudes and patterns of participation
(Campbell 2008). For example, there is evidence that peoples sense of job security as
well as their private behaviors (social ties) are significantly shaped by labor market
policies (Anderson 2009; Anderson and Pontusson 2007).
The notion of policy feedback effects leads us to look for the effects of policies on
populations in ways that are consistent with the logic of their design that is, that
policies affect peoples incentives to do or not do certain things. For the purposes of
analysis, we focus on employment protection and unemployment benefits as the most
immediate and proximate macro-political factors likely to differ across capitalist welfare
states and affect labor market outcomes. In particular, given that all employees in theory
are at risk of being laid off at some point during their careers although the likelihood
and the duration differs considerably across individuals and countries we have even
more reason to believe that these policies affect what individuals think about work and
the necessity to be flexible in order to keep or quickly find new work.

4!

Conceptually, dismissal protection can best be thought of as a form of employerborne tax associated with the costs of lay-offs (OECD 2004). By increasing the costs of
firing workers, stringent dismissal protection makes firing more difficult and therefore
less likely. Unemployment benefits are the compensation employees receive upon losing
their jobs. Laid off workers may not only receive income support after a job loss but also
additional assistance in finding a new job (i.e., counseling, training, or wage subsidies).
Figures 1 and 2 display the variation in strength of dismissal protection and the
generosity of unemployment benefits in the sample of countries we investigate.

-------------------------------------Insert Table 1 & 2 about here

--------------------------------------

These tables show considerable variation across countries. In the U.S., for example, it is
easy to lay off workers. Moreover, once laid off, workers do not have much to expect
financially from their government. In stark contrast, Germany is almost completely the
reverse. Denmark, the iconic example of the EUs idea of flexicurity2, however, is a mix,
as it combines low levels of dismissal protection with generous levels of unemployment
benefits, particularly in the area of active labor market policies. These simple descriptive

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2

With its idea of flexicurity, the European Commission sought combine flexible labor markets with
income and employment security for workers (Wilthagen, 1998; Wilthagen and Tros, 2004; European
Commission, 2006, 2007; Philips and Eamets, 2007). Flexicurity therefore is magic word, which
supposedly satisfies organizations, with their needs for flexibility, and employees, with their needs for
security. Dismissal protection and unemployment benefits are the main knobs to twiddle to ensure this
flexibility-security nexus (Wilthagen and Tros, 2004).

5!

figures illustrate that both the perceived need and potential reforms also differs
considerably across countries.
How these policies impact individuals attitudes, and in particular, peoples
employment flexibility as defined above, is unknown. Despite the importance of
employment flexibility for individual, organizational, and macro-economic outcomes, it
is unclear whether welfare state and labor market policies impact what people think they
need to do to ensure continued employment. When employment protection is low or the
duration of unemployment payments short, are employees more willing to accept jobs
with lower pay or jobs that require longer travel to work. Or do protection against
dismissal and generous unemployment benefits increase the odds of good and lasting
matching processes on the labor market? Based on the review of the existing literature on
the direct effects of these policies on employment outcomes, we will develop hypotheses
on the indirect effects of these policies on employment outcomes that is, workers
attitudes towards flexibility in the next section.

Dismissal Protection, Unemployment Benefits, and Labor Market Performance

Theoretically speaking, the expected impact of dismissal protection on
employment outcomes is ambiguous. While creating new jobs should be easier when
levels of protections are low, overall unemployment may not decrease since the lowered
cost of offering jobs may be compensated by higher exit rates from employment (e.g.,
Blanchard and Landier 2002; Cahuc and Postel-Vinay 2002; Bertola et al. 2007).
Likewise, the effect of unemployment benefits on employment outcomes is ambiguous as
well. By providing those who have lost their job involuntarily with temporary income

6!

support, unemployment benefits can either be considered a disincentive to find new

employment or an economic stabilizer helping individuals to find jobs that match their
qualifications and needs (e.g., Young 2010; Gangl 2003).
Empirically, the relationship between these policies and labor market outcomes is
not much clearer. Although many of the studies of the effects of dismissal protection on
unemployment dynamics suggest that changing the ease with which workers can be laid
off from their jobs indeed affects employment rates (Kugler and Pica 2008; Blanchard
and Landier 2002; Marinescu 2007) and that generous unemployment benefits
especially when paid over an extended period of time prolong unemployment duration
(e.g., Young 2010; Card and Levine 2000), the overall picture is hardly unequivocal.
Based on the literature evaluating the effects of these policies and its ambiguous findings,
negative as well as positive relationships between labor market policies and employment
flexibility could be hypothesized.
While the stringency of dismissal protection is not correlated with overall
unemployment rates at an aggregated level (Nickell 1997; Nickell and Layard 1999),
there is a positive association between dismissal protection and the incidence of
temporary employment (Booth et al. 2002). This finding also has been confirmed at the
micro-level. Kahn (Kahn 2007), for example, finds that higher levels of dismissal
protection are associated with higher employment rates, in particular however, with the
side effect of more temporary employment among women, youth and immigrants.
While in Spain, for example, employment increased after dismissal protection for
permanent employees younger than 30 and older than 45 was relaxed (Kugler et al.
2005), data from Italy suggest that job creation based on reforms making it easier to

7!

employ workers in temporary jobs is only transitional (Boeri and Garibaldi 2007).
Overall, it remains unclear whether the employment effects of dismissal protections are
actually due to changes in dismissal protection or due to changes in the overall economic
environment (Kahn 2010). One explanation for the ambiguous findings in the effects of
dismissal protection is that it affects the composition of unemployment. While high levels
of dismissal protection entail long-term unemployment3, low levels are associated with a
high incidence of short-term unemployment, both of which can contribute to high
unemployment rates.
One consistent finding in the literature examining the effects of unemployment
insurance is that the average duration of unemployment increases when benefits are paid
over a prolonged period of time (e.g., Card and Levine 2000). Moreover, the likelihood
of finding a new job increases considerably just before the benefits run out (Chetty 2008;
Young 2010 for an overview), suggesting that this point is reached later the longer
unemployment benefits are paid. Some scholars interpret this finding as a labor-leisure
tradeoff, such that individuals prefer not to work if they do not have to. The unemployed
may schedule the start of new jobs just for the time when the benefits expire or may be
willing to take any job in the face of exhausting benefits. That is, generous
unemployment benefits are seen as an incentive to not work for pay as long as possible
(Decker 1997; Fredriksson and Holmlund 2006; Gangl 2003). 4
Others view this result as evidence for improved matching that is, that
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
3

Two mechanisms may underlie this phenomenon: First, there are fewer job openings when turnover is low
(or more, when it is high). Second, employers may put more effort into the screening of potential
employees if it is difficult to get rid off them, in case they turn out to be lemons.
4
For the case of the U.S., there is actually a third one: The increase in re-employment at the time when
benefits are about to exhaust, employers may recall of laid off employees. That is, they use unemployment
to manage temporary lay-offs.

8!

individuals do not take the first job available but hold out for a better fit or for better
wages. This interpretation is also highly plausible, given the evidence that unemployment
typically involuntary and a very stressful event for most people. Research has shown that
individual wellbeing decreases sharply in the event of unemployment, even among those
who receive benefits (Jahoda 1982; Clark and Postel-Vinay 2009). Unemployment is thus
not a prolonged holiday but a state that individuals seek to quickly exit. More generous
benefits may only provide them with the opportunity to find a job that matches their skills
and is of comparable income and quality as their previous one, rather than having to take
any job that comes along (Gangl 2006; Chetty 2008; Acemoglu and Shimer 2000).
Assuming that individuals who are employed take existing policies and
regulations into account when thinking about their employment prospects and research
on policy feedback suggests this to be a reasonable assumption two opposing sets of
hypotheses regarding employees employment flexibility are plausible. On one hand, we
would expect that a high likelihood of continued employment because of employment
protection and high reservation wages because of generous unemployment benefits afford
workers the freedom to not work at all or not work very hard that is, reduce their
willingness to be flexible. Therefore, stringent dismissal protection and generous
unemployment benefits should be associated with less employment flexibility. On the
other hand and in contrast to this very instrumental view, there are also good reasons to
believe that the relationship between social protections and individuals attitudes towards
employment flexibility is positive. Unemployment benefits provide workers with the
opportunity to look for jobs that fit their needs, while stringent levels of dismissal

9!

protection requires employers to select their employees more carefully, lest they get stuck
with an unproductive workforce they cannot let go.
We believe that both forces may be at work, up to a point. Thus, we plead for a
third alternative possibility that combines elements of both of the above interpretations.
Specifically, we posit that a moderate level of protection and benefits are positive, since
they ensure some basic level of security that individuals need to concentrate on and enjoy
their work. At the same time, protection and benefits beyond a certain threshold make
people idle. In other words, we expect that up to some level, dismissal protection will be
associated with increasing employment flexibility but that this positive association will
level out or even decline after a certain threshold is reached. Likewise, the prospect of
some basic level of material security will make workers more flexible when it comes to
finding a new job but, again, if these benefits are paid beyond a certain limit, the effect
will level out. Put simply, instead of insisting on resolving the tradeoff between laziness
or liberation, we contend that labor market policies may induce both laziness and
promote liberation.

METHODOLOGY AND DATA

We test these hypotheses by applying multi-level modeling techniques to a dataset that
combines individual-level data from the International Social Survey Program (ISSP) with
country-level information from the Organization of Economic Cooperation and
Development (OECD). The ISSP is an ongoing, collaborative survey of a wide array of
countries with annually changing survey topics. For our analyses, we use the 2005 survey
on work orientations. The OECD collects country level information on important

10!

economic indicators, such as unemployment rates, social expenditures, and employment

regulation, on a regular basis and standardizes the data to allow for international
comparisons.
To assess workers employment flexibility we created a measure consisting of four
questions that asked respondents what they would be willing to do to avoid
unemployment. This included accepting a position with lower pay, temporary
employment, longer commutes to work, and learning new skills. Answers ranged from
strongly agree to strongly disagree. Higher values indicate greater employment
flexibility. A Cronbachs alpha of 0.73 suggests high internal consistency of our measure.
The main independent variables in this study are dismissal protection and
unemployment benefits. These indicators have been widely used in studies of political
economy and measure key components of states labor market policy regimes. The
strength of dismissal protection is captured by an indicator that consists of 14 items on
the protection of individual workers against dismissal and special requirements for
collective dismissals, as well as the regulation of temporary forms of employment.
(OECD 2004, p. 65). The generosity of unemployment benefits is measured in national
expenditures on a) passive labor market policies that is, the material assistance workers
receive in case of lay-off, and b) active labor market policies that is, those governmentprovided services seeking to increase the quality of the labor supply through training and
consulting, creating new jobs, and assisting workers with finding new jobs. This measure
is provided in percentage GDP and adjusted by the number of unemployed and GDP.
To account for alternative reasons that may make workers flexible or inhibit their
flexibility, we include the following control variables: On the individual level we include

11!

gender (1=female), age (in years) as well as its square term, education (in years and
standardized within countries), flexibility of spouse or steady partner (1 having a partner
working fulltime to 4 having no partner), children (1 having children living in ones
household), union membership (1 being a union member), position at work (1 being a
supervisor), occupation (1 being a manual workers), and perceived alternative job
opportunities (1 finding a new job very easily, to 5 having great difficulties finding a new
job). On the country level we use standardized unemployment rates averaged over the last
5 years, a dummy variable capturing labor market trends (1 indicating that unemployment
between 2004 and 2005 goes down). A detailed description of all the variables used in
this study along with their underlying items is provided in the appendix. The means,
standard deviations, and correlations among our study variables are displayed in Table 1.

-----------------------------------Insert Table 1 about here

------------------------------------

ANALYSES
Because we examine differences across countries and combine individual-level with
national-level data in our analyses, we estimate a multilevel model on workers
employment flexibility. Ignoring the nested structure of the data would lead to
underestimated standard errors and erroneous conclusions about the statistical
significance of relationships between the study variables (Rabe-Hesketh and Skrondal
2005). Our random intercept model takes on the following form.

12!

Yij = " 0 + # " k 0 X ij +

k=1

Yij
!

#"

0k

k= ind

Zj +

#u

k0

X ij + u0 j + eij , where

k= count

is the variable the employment flexibility of the individual i

in country j

Xij

are the individual level characteristics for the individual i in country j

Zj

are the country level characteristics for country j

is the overall intercept

ind

are the fixed individual level parameters

count

are the fixed country level parameters

u0j

is the country specific deviation from the overall intercept

!ij

is the residual for the ith individual in country j.

This model assumes that the error components on the individual as well as on the country
level are normally distributed and have equal variance and a mean of zero, that is, uj ~
N(0, !) and !ij ~ N(0, "). Tests of normality and heteroscedasticity (examining the VIFs
of an OLS regression on country level averages with macro-level variables as the only
predictors) do not indicate violations of these assumptions. By restricting the analysis to
employees working at least part-time and to those countries for which macro-level
indicators were available, the final sample yields a total of 12,618 observations in 20
countries1. Missing data for all the variables used in the analyses were less than five
percent.

13!

RESULTS
The results of our analyses are provided in Table 2. First, we run an empty model
(Model 1), which does not include any of our independent variables and therefore only
estimates the intercept. Based on this empty model, we can calculate the intra class
correlation ! (ICC). ! indicates how much of the variance in the dependent variable is
due to differences between individuals versus differences between countries. The intra
class correlation coefficient of Model 1 is of 0.07, which means that around seven percent
of the variance in employment flexibility can be explained by differences between
countries. This suggests that it indeed matters for employment flexibility where in the
world a person lives and works and that it is likely that labor market policies have an
effect on the attitudes towards flexibility of the working population.
-------------------------------------Insert Table 2 about here
-------------------------------------When adding the individual level variables (Model 2), the ICC stays approximately the
same, suggesting that only a very small part of individuals willingness to be flexible
across countries is due to systematic differences between individuals across countries. In
other words, compositional effects do not explain the differences we can observe across
countries. Overall, the coefficients of the individual level variables are straightforward
and confirm what one would generally expect.
The negative and statistically significant coefficient of gender and the negative (but
statistically insignificant) coefficient of children need to be interpreted together. Women
are less willing or, probably, less able to be flexible than men, due to their greater

14!

engagement in household and reproduction work. Having to take care of a child or even
several children at home makes women less flexible than men. We test this by including
an interaction term between gender and children in the model, which turns out to be
statistically significant and suggests that womens and mens attitudes towards flexibility
differ not per se but only in the presence of children (results available upon request).
The effect of age is non-linear (statistically significant coefficients for both, age and
its square term), meaning that employment flexibility increases with age in the early
phases of ones career. This effect flattens outs over time, however. The older and more
experienced one gets, the less willing one is to travel long distances for work, learn new
skills, accept pay cuts, etc. Union membership, public sector employment, and
spousals/partners actual flexibility, do not seem to affect individuals employment
flexibility at least not in a similar way across all countries5.
Education, occupation, working hours, responsibilities at work, and perceived
employment alternatives, however, all affect employment flexibility. We believe that two
different mechanisms drive these results: Needs and opportunities. Although highly
educated workers usually have better employment opportunities than low skilled workers,
they also have fewer actually matching their skills and qualifications. The same applies to
jobs involving supervisory responsibilities. Therefore, it is not surprising that the
coefficients for education and supervisory position are both positive and statistically
significant. These individuals are used to acquiring new skills and traveling longer to
work. Probably they are also more intrinsically motivated to work than those with jobs
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
5

It may be that the non-significance of these coefficients is due to the fact that union membership and
public employment mean very different things in different countries, and that we therefore do not see
statistically significant results. One way to examine whether this was the case is to estimate random slopes
model, (tending to be computationally much more extensive), which we do not do here.

15!

that require only low levels of education and that are subordinate positions. Likewise,
those working fulltime and/or in service sector jobs (occupation is coded such that 1
equals manual worker) as well as those believing that they will have difficulties finding a
new also need to be more flexible. Either they have poor labor market prospects (a lack
of alternatives), are highly dependent on their income (full-time employees), or, given the
nature of their jobs (service workers) have always been used to being flexible.
When adding the country-level variables labor market conditions, unemployment
benefits, and dismissal protection none of the individual level variables changes its sign
(Model 3 & 4). The coefficients for both variables on labor market conditions that is,
unemployment rates (averaged over the last five years) and recent changes in
unemployment fail to reach statistical significance at conventional levels. This is
surprising, but we have two explanations for this finding. First, unemployment (both,
averaged rates and recent changes) varies considerably within countries and across
industries. It thus may simply be that our measures are too coarse to have a statistically
discernable effect on individuals attitudes. Second, although unemployment rates change
seasonally and over the course of different years changes in structural unemployment
turn out to be minor in absence of major labor market reforms(Blanchard and Katz 1997;
Blanchard and Wolfers 2000). Therefore, individuals may just be used to certain
either good or bad labor market conditions (at least in the short to medium-term) and
therefore unaffected in their attitudes towards labor market flexibility.
Finally, the coefficients of dismissal protection, unemployment benefits, and their
respective square terms, provide evidence for our expectation that labor market policies
matter for employment flexibility, and that the relationship between labor market policies

16!

and employees attitudes toward labor market flexibility are non-linear. In Model 3, the
coefficient for dismissal protection is negative (but not statistically significant),
suggesting that higher levels of dismissal protection are associated with less employment
flexibility. The coefficient for unemployment benefits, in contrast, is statistically
significant and positive, suggesting that more generous unemployment benefits increase
workers willingness to be flexible.
By adding the square terms of both variables (Model 4), we increase the model fit of
the data (indicated by the statistically significant Chi-square test of deviances of 8.84
with p < 0.05) and get a fuller picture of the patterns in the data. The signs of the
coefficients for unemployment benefits (positive) and dismissal protection (negative) stay
the same as in Model 3, but become statistically significant when the square terms are
added. The signs of the square terms, in turn, have the opposite direction than the simple
terms. This means that workers employment flexibility increases with the generosity of
unemployment benefits. Beyond a certain point however, this effect levels out and the
association becomes negative). This is exactly the relationship we expected to observe.
The association between dismissal protection and employment flexibility, in contrast, is
exactly the opposite from what we hypothesized. With increasing levels of dismissal
protection, workers employment flexibility decreases and only beyond a certain
threshold does dismissal protection have a positive effect. How can we explain these
findings?

17!

DISCUSSION
We first turn to the relationship between unemployment benefits and employment
flexibility, which confirms our hypothesis. Essentially, economists have discussed and
observed two opposing effects of generous unemployment benefits on labor market
efficiencies. For those with a more pessimistic and more neo-classical outlook, the
distorting effects of generous unemployment benefits stand. According to this
perspective, individuals receiving generous unemployment benefits are inclined to stay at
home when balancing the reasons for and against resuming work.
This reasoning may not only apply to those who are unemployed but also to those
who are asked about what they would do in order to keep their jobs. This may be exactly
what happens if unemployment benefits are paid for a really long time. Not only do
employees know that they can afford to survive without income for quite some time, but
they may also feel entitled to use available benefits, given that their contributions and
taxes to the unemployment insurance are high.
So, why is it that we observe a positive relationship between the generosity of
benefits and employment benefits up to a certain threshold? The reasoning underlying the
argument used by those with a more positive outlook on unemployment benefits, which is
essentially a matching argument, only applies to actual behaviors of the unemployed. We
therefore suggest that another mechanism is at work here, namely, a gift exchange
(Akerlof 1982; Young 2010). Receiving benefits can induce a sense of gratitude and this
gratitude is counteracted with a dedicated search for work, involving training, new
qualifications, longer commutes, and even pay-cuts. Moreover, it may be that employees

18!

anticipate the requirements of active labor market programs, including training as well as
workforce programs.
Although we draw on similar arguments to explain the u-shaped relationship
between dismissal protection and employment flexibility, i.e., the real effects of labor
market policies and work motivations, we argue that there are slightly different
mechanisms at work. In countries where it is difficult to lay-off workers, both employees
and employers have a vested interest in investing in firm- or industry-specific skills
(Estevez-Abe et al. 2001). As a consequence, both the likelihood that one is laid-off but
also the transferability of skills decreases with increasing levels of dismissal protection.
Protections against dismissal, moreover, do not take on the form of a gift, inducing
feelings of reciprocity, but rather induce feelings of entitlement. The negative coefficient
of the main-effect of dismissal protection may therefore be due to the fact that workers
either feel that they do not have to be or cannot be flexible.
There are two explanations for why this negative effect levels out and even becomes
positive. First, only if protections against dismissal exceed a certain threshold do
employees feel truly secure about their job. Only then can the intrinsic motivation to
work increase. Put differently, work enjoyment increases when one does not need to
worry about job loss. A more pessimistic interpretation of the positive coefficient of the
square term is that it is not stringent levels of dismissal protection per se that drives these
results but the high share of temporary workers in those countries with high levels of
dismissal protection. Those employees essentially have no job security and therefore need
to be flexible, with respect to pay, type of work, and commuting time. Because of a lack

19!

of information in the ISSP data on what types of contract employees have, we are
unfortunately unable to assess which of the two explanations is more plausible.
In sum, our analyses show that labor market policies, created to ensure efficient
labor markets and social equity, also affect what people think about their work. The
associations between the different types of policies, dismissal protection and
unemployment benefits, and workers employment flexibility, are non-linear. There are,
however, important differences between the two types of policies. While the positive
effects of generous unemployment benefits level out, confirming our hypothesis of a
happy medium, the opposite is the case for dismissal protections. Increasing strength of
dismissal protection is associated with lower levels of employment flexibility and only
beyond a certain threshold is it associated with an increase in employees attitudes
towards flexibility.

CONCLUSIONS
In this paper, we examine the relationship between labor market policies and workers
attitudes towards flexibility (employment flexibility) that is, the indirect effects that
unemployment benefits and dismissal protection may have on labor market efficiencies.
Our starting point is the demand for labor deregulation, which has led to the promotion
and enactment of policies fostering labor market flexibility in many countries since the
mid 1980s. First, by facilitating the hiring and dismissal of workers and increasing
employees incentives to quickly transition to a new job after a lay-off, policymakers
have sought to make it easier for employers to lay off workers in times of economic
downturn and hire more in times of economic advance. And by lowering social benefits,

20!

policymakers have sought to lower stubbornly high unemployment rates by decreasing

reservation wages and increasing incentives to work.
While the effects of labor market policies and their reforms on labor market
dynamics and social inequality have received considerable attention in economics and
sociology, the question of how these policies affect the attitudes of the employed is
under-researched. With this paper we seek to close this gap. Linking macro-level welfare
state policies with individual-level attitudes and perceptions, we expand on existing
research on labor market flexibility and its consequences in economics and sociology
(Giesecke 2009; Giesecke and Gross 2003).
In contrast to the research done by economists and sociologists, our focus is on
the attitudes towards flexibility of those who are currently gainfully employed. We show
that the generosity of unemployment benefits and strength of dismissal protection are
associated with workers willingness to be flexible and describe how these policies
matter. Unemployment benefits are good for workers employment flexibility, however,
only up to a certain level. Dismissal protections, in contrast, only have a positive
association with employment flexibility beyond a certain threshold.
While we attribute these findings to differences in feelings of reciprocity vs.
entitlement and differences in intrinsic vs. extrinsic work motivations, our data cannot
help us identify these causal pathways directly. The data we use in our analyses are only
cross-sectional. As a result, meaning that we do not know for sure whether individual
attitudes and predispositions are the consequence of certain policies or their drivers. In
addition to this very common limitation, the lack of a variable indicating whether the
respondent is a permanent or a temporary employee is another shortcoming of our study.

21!

Further research on the relationship between labor market policies and workers
employment flexibility should therefore be based on longitudinal data that also contain
information about individual employment agreements. Moreover, we need to find out
what the actual consequences of individuals stated willingness to be flexible are with
respect to their employment as well as demand for policies (Fazio 1986). Moreover, it
would be interesting to see whether and, if so, how, previous experiences with
unemployment affect individuals later employment flexibility. We believe that the
results of this study along with further research on the relationships between labor market
policies and individuals willingness to be flexible can be important for policymakers as
well as for organizations.

22!

Figure 1. Strength of Dismissal Protection (2005)

Note: The dismissal protection indicator has been developed by the OECD and refers to the protection of regular as
well as temporary employment. The data can be found at stats.oecd.org/index.aspx .

23!

Figure 2. Absolute and Relative Spending on Unemployment Benefits (2005)

Note: While the upper figure displays the absolute generosity of unemployment benefits on the individual level, the
lower figure displays the relative generosity on the country level. The data can be found at stats.oecd.org/index.aspx .

24!

Table 1. Means, Standard Variations, and Correlations of Study Variables

1

10

11

12

13

14

15

16

Emp. Flex.

Gender

-0.017

Partner Flex.

0.0287

-0.0893

Children

0.027

0.0211

-0.2458

Age

-0.1443

-0.0491

-0.1823

-0.1774

AgeSq

-0.1512

-0.0518

-0.1477

-0.2275

0.9895

Education

0.0752

0.0167

0.0474

-0.0297

-0.152

-0.1381

Occupation

-0.073

-0.2809

0.0387

-0.013

0.0399

0.0457

-0.1371

Union

-0.0181

0.0259

-0.0868

-0.0049

0.1126

0.102

-0.0496

-0.0319

10

Public Sector

-0.0057

0.1774

-0.0544

0.0036

0.0623

0.0537

0.0428

-0.2156

0.3171

11

Alternative

-0.0112

0.0187

-0.0422

-0.0349

0.189

0.1865

-0.0556

0.0002

0.0372

0.0628

12

Fulltime

0.0372

-0.2758

0.022

-0.0553

-0.024

-0.0313

-0.0652

0.0893

0.0706

-0.0407

0.0149

13

Supervisor

0.1092

-0.1566

-0.0429

0.0272

0.0748

0.064

0.045

-0.1488

-0.0201

-0.0271

-0.0244

0.1127

14

Trend

0.008

-0.0099

-0.0487

-0.0185

0.0334

0.0373

-0.0288

0.0137

0.0508

-0.0122

-0.1171

0.0444

0.0045

15

Unempl.

-0.0709

0.0145

-0.0595

0.0189

-0.0538

-0.0579

-0.0652

0.0318

-0.0415

0.0205

0.0224

0.0716

-0.0417

0.1534

16

DP

-0.083

0.0248

-0.0104

0.0503

-0.0541

-0.0586

-0.0378

0.0303

0.0065

0.0239

0.1083

0.0726

-0.0882

-0.5091

0.3775

17

UB

0.0524

0.0046

0.0345

0.0103

0.0518

0.0481

-0.0936

-0.0973

0.3455

0.1259

-0.0552

-0.0346

0.0296

-0.0102

-0.2352

0.0641

17

1
1

Table 2. Random Intercept Models of Employment Flexibility

Model 1
b

se

Gender
Flex/Partner
Children
Age
Age Squared
Education
Occupation
Union
Public
Supervisor
Full time
Alternative
Trend
Unemployment
Unemployment
benefits
Dismissal
protection
DP_sq
UB_sq
Intercept
3.44***
(0.05)
sigma_u
0.22***
(0.04)
sigma_e
0.82***
(0.00)
Log Likelihood
-1.7e+04
LR Chi Square
0.00
Rho
0.07
* p<0.05, ** p<0.01, *** p<0.001

Model 2
b
-0.03*
-0.00
-0.02
0.02***
-0.00***
0.00***
-0.10***
-0.04

0.10***
0.03***

3.36***
0.22***
0.80***
-1.5e+04
507.86
0.07

se
(0.02)
(0.01)
(0.02)
(0.00)
(0.00)
(0.00)
(0.02)
(0.02)
-0.01
0.12***
(0.02)
(0.01)

(0.12)
(0.04)
(0.01)

Model 3
b

se

Model 4
b

se

-0.03*
-0.00
-0.02
0.02***
-0.00***
0.00***
-0.10***
-0.04*
(0.02)
(0.02)
0.10***
0.03***
-0.06
0.00

(0.02)
(0.01)
(0.02)
(0.00)
(0.00)
(0.00)
(0.02)
(0.02)
-0.01
0.12***
(0.02)
(0.01)
(0.10)
(0.03)

-0.03*
-0.00
-0.02
0.02***
-0.00***
0.00***
-0.10***
-0.04*
(0.02)
(0.02)
0.10***
0.03***
-0.02
-0.01

(0.02)
(0.01)
(0.02)
(0.00)
(0.00)
(0.00)
(0.02)
(0.02)
-0.01
0.12***
(0.02)
(0.01)
(0.08)
(0.02)

0.09*

(0.04)

0.36**

(0.11)

-0.11

(0.07)

3.43***
0.18***
0.80***
-1.5e+04
514.81
0.05

(0.20)
(0.03)
(0.01)

-0.46**
0.09*
-0.06*
3.54***
0.15***
0.80***
-1.5e+04
523.07
0.03

(0.18)
(0.04)
(0.02)
(0.21)
(0.02)
(0.01)

References
Acemoglu, Daron, and Robert Shimer. 2000. "Productivity Gains from Unemployment
Insurance." European Economic Review 44 (7):1195-224.
Akerlof, George. 1982. "Labor Contracts as Partial Gift Exchange." Quarterly Journal of
Economics 97 (4): 543-69.
Anderson, Christopher J. 2009. "The Private Consequences of Public Policies: Active
Labor Market Policies and Social Ties in Europe." European Political Science Review 1
(3):341-73.
Anderson, Christopher J., and Jonas Pontusson. 2007. "Workers, worries and welfare
states: Social protection and job insecurity in 15 OECD countries." European Journal of
Political Research 46:211-35.
Bertola, Guiseppe. 1999. "Microeconomic perspectives on aggregate labor markets." In
Handbook of labor economics, ed. O. Ashenfelter and D. Card. Amsterdam, NL:
Elsevier.
Bertola, Guiseppe, Francine D. Blau, and Lawrence M Kahn. 2007. "Labor market
institutions and demographic employment patterns." Journal of Population Economics 20
(4):833-67.
Blanchard, Olivier, and Lawrence F. Katz. 1997. "What We Know and Do Not Know
About the Natural Rate of Unemployment." The Journal of Economic Perspectives 11
(1):51-72.
Blanchard, Olivier, and Augustin Landier. 2002. "The Perverse Effects of Partial Labour
Market Reform: Fixed-Term Contracts in France." The Economic Journal 112
(480):F214-F44.
Blanchard, Olivier, and Justin Wolfers. 2000. "The Role of Shocks and Institutions in the
Rise of European Unemployment: The Aggregate Evidence." The Economic Journal 110
(462):C1-C33.
Boeri, Tito, and Pietro Garibaldi. 2007. "Two tier reforms of employment protection: a
honeymoon effect?" Economic Journal 117 (521):357-85.
Booth, Alison, Marco Francesconi, and Jeff Frank. 2002. "Temporary jobs: stepping
stones or dead ends?" Economic Journal 112 (480):189-213.
Cahuc, Pierre, and Fabien Postel-Vinay. 2002. "Temporary jobs, employment protection,
and lbaor market performance." Labour Economics 9 (1):63-91.
Campbell, Andrea L. 2003. How Policies Make Citizens: Senior Political Activism and
the American Welfare State. Princeton, NJ: Princeton University Press.

27

. 2008. "Policy Feedbacks and the Political Mobilization of Mass Publics." In

Unpublished MS. Department of Political Science, M.I.T.
Card, David, and Philip Levine. 2000. "Extended Benefits and the Duration of UI Spells:
Evidence from the New Jersey Extended Benefit Program." Journal of Public Economics
78 (107-138).
Chetty, Raj. 2008. "Moral Hazard versus Liquidity and Optimal Unemployment
Insurance." Journal of Political Economy 116 (2):173-234.
Clark, Andrew, and Fabien Postel-Vinay. 2009. "Job security and job protection." Oxford
Economic Papers 61:207-39.
Decker, Paul T. 1997. " Work Incentives and Disincentive." In Unemployment Insurance
in the United States: Analysis of Policy Issues, ed. C. OLeary and S. A. Wandner.
Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
Esping-Andersen, Gsta, and Marino Regini, eds. 2000. Why deregulate labour markets?
New York: Oxford University Press.
Estevez-Abe, Margarita, Torben Iversen, and David Soskice. 2001. "Social Protection
and the Formation of Skills: A Reinterpretation of the Welfare State." In Varieties of
Capitalism: The Institutional Foundations of Comparative Advantage, ed. P. A. Hall and
D. Soskice. Oxford: Oxford University Press.
Fazio, Russell H. 1986. "How do attitudes guide behavior?" In Handbook of Motivation
and Cognition, Foundations of Social Behavior, ed. R. M. iSorrentino and E. T. Higgins.
New York: Guilford Press.
Fredriksson, Peter, and Bertil Holmlund. 2006. "Improving Incentives in Unemployment
Insurance: A Review of Recent Research." Journal of Economic Surveys 20 (3):357-86.
Gangl, Markus. 2003. "Unemployment insurance and the stability of earnings: A
comparison of work exits from unemployment in the United States and West Germany."
Schmollers Jahrbuch Journal of Applied Social Science Studies 123 (1):83-94.
. 2006. "Scar Effects of Unemployment: An Assessment of Institutional
Complementarities." American Sociological Review 71 (6):986-1013.
Giesecke, Johannes. 2009. "Socio-economic Risks of Atypical Employment
Relationships. Evidence from the German Labour Market." European Sociological
Review: forthcoming.
Giesecke, Johannes, and Martin Gross. 2003. "Temporary Employment: Chance or
Risk?" European Sociological Review 19 (2):161-77.
Jahoda, Marie. 1982. Employment and unemployment: a social-psychological analysis.
Cambridge, New York: University Press.

28

Kahn, Lawrence M. 2007. "The impact of employment protection mandates on

demographic temporary employment patterns: international microeconomic evidence."
Ecnomic Journal 117 (521):333-56.
. 2010. "Employment protection reforms, employment, and the incidence of
temporary jobs in Europe: 1996-2001." Labour Economics 17:1-15.
Kugler, Adriana, Juan F. Jimeno, and Virgina Hernanz. 2005. "Employment
consequences of restrictive permanent contracts: evidence form Spanish labor market
reforms." In Working Paper. Huston, TX: University of Huston.
Kugler, Adriana, and Giovanni Pica. 2008. "Effects of employment protection on worker
and job floews: evidence from the 1990 Italian reform." Labour Economics 15 (1):78-95.
Kumlin, Staffan. 2004. The Personal and the Political: How Personal Welfare State
Experiences Affect Political Trust and Ideology. New York: Palgrave Macmillan.
Kumlin, Staffan, and Bo Rothstein. 2005. "Making and Breaking Social Capital: The
Impact of Welfare State Institutions." Comparative Political Studies 38 (4):339-65.
Lazear, Edward P. 1990. "Job Security Provisions and Employment." The Quarterly
Journal of Economics 105 (3):699-726.
Marinescu, Ioana. 2007. "Shortening the tenure clock: The impact of strengthened UK
job security legislation." In Working Paper. Chicago, IL: University of Chicago.
Mettler, Suzanne B. . 2002. "Bringing the State Back In to Civic Engagement: Policy
Feedback Effects of the GI Bill for World War II Veterans." American Political Science
Review 96 (2):351-65.
Mettler, Suzanne B., and Joe Soss. 2004. "The Consequences of Public Policy for
Democratic Citizenship: Bridging Policy Studies and Mass Politics." Perspectives on
Politics 2 (1):55073.
Nickell, Stephen. 1997. "Unemployment and Labor Market Rigidities: Europe versus
North America." The Journal of Economic Perspectives 11 (3):55-74.
Nickell, Stephen, and Richard Layard. 1999. "Labor market institutions and economic
performance." In Handbook of labor economics, ed. O. Ashenfelter and D. Card.
Amsterdam, NL: Elsevier.
OECD, (Organisation for Economic Cooperation and Development). 2004. "Employment
Outlook." Paris, France.
Rabe-Hesketh, Sophia, and Anders Skrondal. 2005. Multilevel and Longitudinal
Modeling Using Stata. College Station, TX: Stata Press.

29

Siebert, Horst. 1997. "Labor Market Rigidities: At the Root of Unemployment in

Europe." The Journal of Economic Perspectives 11 (3):37-54.
Soss, Joe. 1999. "Lessons of Welfare: Policy Design, Political Learning, and Political
Action." American Political Science Review 93 (2):363-80.
Young, Cristobal 2010. "Unemployment Insurance and Job Search Effort: Evidence
from Random Audits " In Working Paper: Princeton University.

30