IZA DP No. 385 The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation Andrea Ichino Regina T. Riphahn DISCUSSIONPAPERSERIES Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor November 2001 The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation Andrea Ichino European University Institute, Florence, CEPR, CESifo and IZA, Bonn Regina T. Riphahn University of Basel, CEPR, DIW and IZA, Bonn Discussion Paper No. 385 November 2001 IZA P.O. Box 7240 D-53072 Bonn Germany Tel.: +49-228-3894-0 Fax: +49-228-3894-210 Email: iza@iza.org This Discussion Paper is issued within the framework of IZA’s research area Mobility and Flexibility of Labor Markets. Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. IZA Discussion Paper No. 385 November 2001 ABSTRACT The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation∗ Employment protection systems are known to generate significant distortions in firms’ hiring and firing decisions. We know much less about the impact of these regulations on worker effort. The goal of this paper is to fill in this gap and in particular to assess whether the provision of employment protection induces less effort among workers in the form of absenteeism. Our analysis is based on weekly observations for the 858 white collar workers hired by a large Italian bank between January 1993 and February 1995. These workers begin to be protected against firing only after the twelfth week of tenure and we observe them for one year. We show that the number of days of absence per week more than doubles once employment protection is granted, thus confirming what is suggested by our theoretical model and what is typically assumed in the literature. We also discuss how this evidence can be used to estimate what the absenteeism rate would be in Italy if employment protection were eliminated. JEL Classification: M50, J24, J31, J41 Keywords: Probation, employment protection, absenteeism, worker effort Regina T. Riphahn WWZ – University of Basel Petersgraben 51 CH-4003 Basel Tel.: +41 61 2673367 Email: Regina.Riphahn@unibas.ch ∗ We would like to thank Lazlo Goerke for his suggestions concerning the theoretical framework. We also received useful comments from Josh Angrist, Giorgio Brunello, Giulio de Caprariis, Pietro Ichino, Klaus Engelmann, Soren Johansen, Fulvio Rossi and seminar participants at Berlin, EUI, Princeton, MIT, Munich, Rutgers, UPF and Zurich. Sascha Becker provided excellent research assistance.  W?|hL_ U|L? *@h}i *|ih@| hi @t t| _i_ | i igiU| Lu i4T*L)4i?| ThL|iU|L? t)t|i4t L? | i ThLTi?t|) Lu €h4t |L hi @?_ €hic t L?} | @| | iti igiU|t @hi 4TLh|@?| @?_ U@T@M*i Lu U@ t?} t}?€U@?| ?iUi?Uit  U *itt t !?L? @ML | | i _t|Lh|L?@h) igiU|t Lu i4T*L)4i?| ThL|iU|L? t)t|i4t L? | i Mi @Lh Lu Lh!iht A i }L@* Lu | t T@Tih t |L €** ? | t }@T @?_ ? T@h|U *@h |L @ttitt  i| ih | i ThLtL? Lu i4T*L)4i?| ThL|iU|L? ?_ Uit @ hi_ U|L? 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