Individuals’ ideological beliefs are far more important than their own labour market status in influencing their support for strong job protection for workers on permanent contracts. That is the key finding from analysis of a new survey of 7,000 individuals in 14 advanced countries conducted by Romain Duval, Yi Ji, Chris Papageorgiou, Ippei Shibata and Antonio Spilimbergo.

Nearly half of the respondents favour strict job protection legislation. Of those, almost two-thirds say that their opinion reflects social concerns – for example, that deregulation will not create jobs and will increase inequality – rather than individual concerns – for example, that deregulation might hurt them personally. Two-thirds also say that they would not change their opinion even if adequate monetary compensation were provided to address their specific concerns about deregulation.

Why do some people strongly support protecting workers against layoffs while others don’t? Does an individual’s opinion on job protection primarily reflect endowments – self-interest – or deep-seated prior beliefs? That is, for example, does someone support strong protection of workers with permanent contracts just because they are one of them, or because giving employers freedom to lay off workers is immoral?

Looking for answers, this research team ran a survey across 7,000 individuals in 14 advanced countries. Their questions were designed to assess the significance of many factors for individual support for strong job protection, and thereby to shed light on the respective roles of endowments (such as labour market status, education or family situation) versus beliefs (such as political opinions, knowledge of how job protection regulation works, or trust – or lack thereof).

Their study finds that beliefs matter two to three times more than endowments.

One particularly significant belief is the extent to which respondents understand what regulation does in practice; for example, those individuals who understand that tight job protection reduces both layoffs and hires are less likely to support it.

Of the survey respondents, 47% favour strict job protection legislation; support is weakest in the United States, and greatest in Southern European and Asian countries. Almost two-thirds of those who favour strict legislation state that their opinion reflects social concerns (for example, that deregulation will not create jobs and will increase inequality) rather than individual concerns (for example, that deregulation might hurt them personally).

In addition, individuals who could personally benefit from looser legislation due to their individual endowments (the unemployed, out-of-the-labour-force, self-employed) are just as likely to favour strict legislation than others, and they are also more likely to favour it on social (rather than personal) grounds.

Further, two-thirds of those who support strict legislation would not change their opinion even if adequate monetary compensation were provided to address their specific concerns about deregulation. These results are again consistent with a key role of beliefs in driving people’s opinions about job protection regulation.

But beliefs can change. After filling out the questionnaire, half of (randomly selected) respondents were given new information. Specifically, they were told that making it easy for employers to lay off permanent workers when they feel the economic need to do so is beneficial for the overall economy and increases hiring opportunities.

Compared with individuals who did not receive this information treatment, the likelihood that treated respondents favour strict regulation drops by 13 percentage points after they receive the new information – in other words, one-third of them changed their minds and stated that they now favour looser regulation.

The researchers’ key finding that beliefs trump endowments matters because, over the past half century, job protection legislation has been far more stable, and attempts at deregulation have faced far more heated and successful opposition, than in other policy areas where widespread deregulation has taken place, such as international trade, financial markets or product markets.

If beliefs are key, compensating poorly endowed individuals – laid-off regular workers – through, say, access to high unemployment benefits and retraining programmes, is not enough to garner political support for deregulation. In addition, governments should seek to understand citizens’ beliefs and concerns, and improve their communication on the effects of the proposed reforms.

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Preferences for Labor Regulation: Endowments vs. Beliefs

Authors:

Romain Duval (International Monetary Fund)
Yi Ji (World Bank)
Chris Papageorgiou (International Monetary Fund)
Ippei Shibata (International Monetary Fund)
Antonio Spilimbergo (International Monetary Fund)