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Temporary workers have most employment protection in Europe

A study published by CEPS/Instead in 2010 measured the amount of protection afforded to workers by employment legislation in Luxembourg for the first time. The study, which used the employment protection indicators of the Organisation for Economic and Cooperative Development (OECD), found that Luxembourg has the most protective employment legislation in Europe for temporary workers, although permanent workers’ protection is similar to that of other EU Member States.

Introduction

The study (in French, 3.87Mb PDF) published by the Centre for Population, Poverty and Socio-Economic Policy Studies (CEPS/INSTEAD) in December 2010 was the first time a comprehensive study into employment protection in Luxembourg had been carried out. Previously only estimates of the extent of Luxembourg’s employment protection had appeared in publications from the Organisation for Economic Co-operation and Development (OECD).

OECD indicators of employment protection

The CEPS/Instead research took into account the ‘21 items quantifying the costs and procedures involved in dismissing individuals or groups of workers or hiring workers on fixed-term or temporary work agency contracts’ (Venn, 2009, p. 6) used to compile OECD employment protection indicators. The overall OECD summary indicator of the stringency of employment protection is made up of three sub-indicators quantifying different aspects of employment protection (Venn, 2009, p. 6):

  • individual dismissals of workers with regular contracts;
  • additional costs for collective dismissals;
  • regulation of temporary contracts.

OECD data show that Luxembourg belongs to the group of OECD countries whose workers are offered the most protection (see figure below). Based on a scale from 0 (least restrictions) to 6 (most restrictions), Luxembourg has a value of 3.40 (calculated on data for 2008) and is in second place after Turkey. The next four EU Member States in the list are Spain, Greece, Portugal and France.

Figure 1: Strictness of employment protection, 2008

Figure 1: Strictness of employment protection, 2008

Notes: Data for France and Portugal are for 2009.

Scale from 0 (least restrictions) to 6 (most restrictions).

Source: Venn (2009, Figure 1)

Robust protection for temporary jobs

The high score achieved with these indicators is due to the particularly strong protection afforded to temporary workers in Luxembourg. In this category Luxembourg is distinguished from other Member States with a score of 3.92 compared with 2.67 for Belgium, 3.83 for Spain, 3.75 for France, 3.54 for Greece, 2.54 for Portugal and 1.96 for Germany. However, as pointed out by the CEPS/Instead study, the weight of this factor ought to be considered in the context of ‘the share of permanent posts [being] extremely high (more than 90% of employment)’ and thus, ‘the rigidity of the law for temporary contracts’ relates to ‘only one very small section of employment’. As stated by Lawson (2010), it is because of this rigidity in the protection of permanent workers that the share of part-time work is so low in Luxembourg, accounting for less than 7% of total employment in 2008.

Good protection in case of collective redundancies

The second explanation for the high score achieved by Luxembourg is related to ‘the strictness of the protective legislation on the issue of collective redundancies’. On this issue, ‘Luxembourg has a high degree of protection (3.88) while belonging to the group of the three most protective countries’ (Haag, 2010, p. 7) after Belgium and Italy.

The law of 22 December 2006, which promotes employment security, outlines specific measures in areas of social security and the political environment, and emphasises employers’ obligations. The plan to safeguard employment makes discussions between the social partners mandatory on issues such as:

  • measures on bank working hours;
  • time frame of the measures safeguarding employment;
  • training and continuous education;
  • reclassification of occupations;
  • reductions in working time.

Protection for permanent employment

Despite Luxembourg’s high overall score, the employment security of its permanent workers does not appear to be out of the ordinary with a score of 2.68, compared with Germany (2.85), France (2.60) and countries that offer more protection to permanent workers such as Portugal (3.51). The protection of workers with regular contracts from dismissal derives not from the financial implications related to allowances, but in the administrative rules that make the dismissal of this group of workers difficult.

Evolution 2003–2008

Between 2003 and 2008, the value of the indicators for the protection of employment increased from 3.15 to 3.35 indicating an evolution towards greater protection. This trend is primarily due to the strength of legislation protecting temporary workers being ‘more marked than that relating to permanent workers’ (Haag, 2010, p. 11). For collective dismissals the score remained stable during this period.

Over the period 2003–2008, what distinguished Luxembourg from other countries was that, in effect, it was the only country characterised by a growth in employment protection for temporary workers, and the maintenance of protection for permanent workers and against collective dismissals.

Commentary

The protective legislative environment in Luxembourg did not result in a high unemployment rate (4.8% in 2010). This calls into question the notion that there is a correlation between high levels of employment protection and a labour market characterised by high unemployment. However, in a report on employment protection, OECD suggests that a loosening of protective legislation could have a positive effect on the employment of young people, increasing the employment rate for this group by 2% (Lawson, 2010, p. 27).

References

Haag, A. (2010), Mesure empirique de la flexibilité du marché du travail luxembourgeois (3.87Mb PDF), Les Cahiers du CEPS/INSTEAD, No. 2010-28, CEPS/Instead, Luxembourg.

Lawson, J. (2010), Making the Luxembourg labour market work better (510Kb PDF), Economics Department Working Papers No. 778, Organisation for Economic Co-operation and Development, Paris.

OECD (Organisation for Economic Co-operation and Development) (2010), OECD indicators on employment protection – annual time series data 1985–2008 (584Kb MS Excel), Paris.

Venn, D. (2009), Legislation, collective bargaining and enforcement: Updating the OECD employment protection indicators (1.56Mb PDF), Organisation for Economic Co-operation and Development, Paris.

Frédéric Turlan, HERA



Page last updated: 27 February, 2012
About this document
  • ID: LU1110011I
  • Author: Frédéric Turlan
  • Institution: HERA
  • Country: Luxembourg
  • Language: EN
  • Publication date: 27-02-2012
  • Subject: Labour market