Minus seven: flexibility!
Rodion Romanovic left a new comment on your post " It's the flexibility, beauty … (MMT vs. Phillips) ":
Good evening Professor, where can I find the complete data on job flexibility? On the OECD database, the employment protection series date back to as late as 1985. Where can you find the data from the previous two decades that you used to estimate the model?
Also, I can't quite understand how the "FLEX" series you used was derived, perhaps by averaging the four indicators provided by the OECD website? Because it seems to me from the graph (maybe I don't see it wrong) that it has a different trend than the "Temporary Constracts" series.
Thank you very much in advance. A warm greeting!
Posted by Rodion Romanovic in Goofynomics at 5 Apr 2020 20:36
Rodion Romanovic, among the protagonists of this blog, is the one I loved most: not only for his unforgettable performance in Eurodelitto and Eurocastigo , but also for the dull appearance in his faded prequel, Преступление и наказание , one of those useless and tedious books without pictures of which you, who are right-wingers are not cults and only read photo novels, I don't think you have heard of. You haven't missed anything. But Eurodelitto and Eurocastigo, on the other hand, I dispassionately recommend reading it, and doing it now (if it hasn't happened before) …
For an author it is an inexpressible emotion to meet his own character, even when it is someone else's character!
A little 'for this, a little' because on April 5, 2020 I was rather meddled in the processing of " Cura italia ", as well as in vigilante waiting (but without Tachipirina) of the " Liquidity " (albeit in the comfortable role of opponent, the one from which now the friends of Fratelli d'Italia are trumpeting), and a little, finally, because the question was very detailed, and required an equally detailed answer, I had left this job behind, in the queue for moderation, but I had not forgotten it (I do not forget and above all I do not forgive). I now return to satisfy Rodka's legitimate curiosity, hoping to enrich your (and certainly my) knowledge.
But before I get into it, I need to provide noobs with some background information . What are we talking about? Why are we interested? And why was it not possible for me to reply immediately?
We are talking about something you have heard about dozens of times, not in your existence: today. Every day, every single day that God puts on earth, dozens of times a day, you hear about reforms. The journaille can be content with the slogan. The científicos , on the other hand, to appear as such, reforms must measure them! The indicators of which Rodja speaks, those of labor flexibility, are precisely intended to measure the mother of all reforms: the reform of the labor market! The aim of these reforms is generally to solve the father of all problems: how to pay less for work to recover price competitiveness (and profit shares). We are in the wonderful world of "offertists" technicians, the only technicians we have, those for whom, if there is a lack of demand, it is still necessary to make the offer more flexible, to produce more at a lower cost. It is difficult to understand how this can solve the demand problem, because lowering wages actually means further reducing aggregate demand (the money that circulates), and on this by now I would say that an ephemeral consensus has been reached (it will evaporate, but for now there is is).
This obviously does not mean that the labor market must be sclerotic, that an employment relationship must require a large but unpredictable amount of money and the advice of a Rota lawyer to be dissolved! It only means that there are problems that can be solved by acting on the supply and its possible rigidity, and problems that can be solved by acting on the demand and its possible shortage: solve the latter (little demand) with the recipe useful for the former (more flexibility) does not make the economy stronger or growth faster, kind of like amputating your healthy leg creates more problems than it is meant to solve.
Measuring flexibility is therefore interesting, just as asking for "reforms" can be justified. Then you have to evaluate the context. In a context of austerity, that is, of deficient demand, only a deficient can think that the problem can be solved on the supply side, that is, with reforms and "flexibility". This is the film we have seen in the last twelve years, a film that despite the undoubted quality of its characters made us laugh very little.
Before thinking about how flexibility is measured, let me clarify a point that I think may interest you. The OECD, which produces data, but sometimes also opinions distorted by data, for some strange reason since 2013 had stopped updating the series of these indicators. My educated guess , expressed implicitly here :
was that this lack of diligence was due to an unpleasant accident on the way, this:
In 2013, the Italian labor market had become less "protected", and therefore more flexible, than that of Germany and France (green line under the black and blue lines). We can reason whether this result, determined by the "Fornero reform" of the labor market ( law 28 June 2012 number 92 ) was a good or a bad thing. Let's say that between 2012 and 2013 the unemployment rate went from 10.9 to 12.4, so, as it were, this flexibility booster did not seem to have given the desired results …
But if for Italy this result wasn't exactly good, for the OECD and its willing executioners it was definitely catastrophic!
Think!
What do you do when a reform, or in general a policy (including health) visibly does not work? But it's simple: it is said that more is needed (more "doses", more "reforms", more "flexibility", etc.)! The fault is never with the doctor but always with the patient, because he did not do enough homework.
Good.
But when the data indicated that the intensity of the Italian "reforms" was greater than that of the French and German reforms, what was left for the nice friends of the OECD to do? Simple: silence and resignation! They certainly couldn't say they were making more reforms to a country that had shown itself to be more realistic than Germany, that is, more German than the king, that is, sorry: more realistic than the king.
For six (6) long years the statistics were not updated. Whenever I went to Paris, and when I was a free man I often went there, I found myself having dinner with people of that milieu and doing a bit of a narquois , between an os à moelle and a listlessness of Pont-l'Évêque, after having listened to some amused and amusing anecdote of the pupils of such a great teacher (life is a wonderful thing …), I dropped into my speech a phrase like "But do we have flexibility? But when do your friends get these data out?" …
A certain (widely expected) embarrassment followed … because there was no precise reason not to produce those data, and therefore, how to say, my educated guess remained the only viable option on the field (a story that, if we pay attention, remember this very much:
that is, the first of a series of unpleasant events in which Minister Speranza went to hunt, after having adopted measures that obviously do not bother us only – the literary reference is to this thread ). A bit like Speranza would like to stop counting the infected to tell us that her rhapsodic and unfounded measures have been effective, so the OECD had stopped measuring flexibility in order not to have to admit that the policies she recommended had failed.
Same, right?
Understood why I'm not surprised if not by one thing: your surprise? This is how it is done, they are the tools of the trade: when opinions turn out to be wrong, the facts are changed or hidden :
Giving you the political framework as detailed as possible, I enter the technical framework: how is flexibility measured (ie how does the OECD measure)? How was the FLEX variable used in the model built in 2014 with the help of Mongeau Ospina constructed ?
On the first point (how flexibility is measured), now that it has resumed publishing the indicators, I can refer you to the OECD website on indicators of employment protection . Basically, the OECD summarizes in a single numerical indicator, after having somehow standardized them, a series of quantitative variables that indicate the degree of rigidity (if they grow) or flexibility (if they fall) of the labor market. The technical description is in this chapter of the 2020 Employment Outlook , which announces the resumption of publication after this prolonged eclipse, and to understand how the indicators work just take a look at Table 3.1:
The variables considered are stuff like the duration of the notice required for dismissal (obviously, the longer the notice, the more rigid the market is), the possibility of being summarized in the event of dismissal without just cause (if this possibility exists, the market for work is more rigid), the amount of the severance pay, etc.
It is a lot of fun to learn in Par. 3.2 from OECD economists that their indicators are fundamental for the study of the economy, but since unfortunately they had a judo lesson for six years, they could not publish them because boh:
Is not it beautiful?
If my educated guess had been correct, the new series, in order to be "better" (that is, more functional to the narrative) would have been built in such a way as to hide that unpleasant incident (Italy's "best" than Germany !? Impossible .. .).
Anyway: after having told you how the OECD measures flexibility, I have to tell Rodka how the FLEX indicator is constructed: as a weighted average of the indicator referring to the rigidity of individual dismissals for regular (permanent) contracts and of the one referred the rigidity of individual dismissals for fixed-term contracts (indicators epr_v1 and ept_v1), chosen because only for these the previous version of the database provided a sufficiently long series (from 1985 to 2013), using the incidence of the respective types of contracts (open-ended and fixed-term). So, for example, Italy's FLEX indicator came out of this calculation:
where td is the percentage of fixed-term workers, epr the index referring to permanent contracts, ept that referring to fixed-term contracts, and FLEX the weighted average (which you can check). So, to understand, and with reference to the first row, the FLEX composite indicator derives from the operation: 2.76 x (1-0.062) + 4.75 x 0.062 = 2.89 (with a slight rounding error). Given that fixed-term contracts are a small percentage, albeit increasing over time, the trend of the series is dominated by the epr indicator (flexibility of "regular", ie permanent, employment), and in particular the "jump" towards lower rigidity (with passage from 2.66 to 2.44 of the average FLEX indicator depends on the jump from 2.76 to 2.51 of the epr indicator.
And with this ends my answer to Rodja.
Now I have to remove a curiosity, and I take it off here, live with you. That a supranational organization renounces for six years to publish such a central fact in the narrative that it itself carries forward ("Le reformeeeeeeeh! Flexibilitaaaaaah!") Is, you understand well, a rather conspicuous anomaly. The doubt is that these six years have served to find a way to "refine" the #dates published up to 2013 , in order to plane the annoying exception given by the fact that in 2013 Italy had made more reforms than Germany, or how much less could they have served to resume publication in a year in which the evolution of the data allowed to support the moralistic narrative of the "reforms" (we will see that both are true).
To verify this, in the previous Table I add Germany:
and then I repeat the same calculations taking the data extracted from the last edition (that of 2021):
and the result is something like this:
where, with little surprise, we see that by making up by measuring the data more accurately, the OECD can tell us that Italy has always strictly dominated Germany in terms of (greater) rigidity of the labor market, that is, it has always needed " reforms ", also in 2013, after the Fornero law, with one exception from 2016 to 2018 (due to the notorious jobs act ). Obviously, the publication of the data resumed in 2020 (evidently our highly paid officials were bored in smart working ), also because since the Dignity Decree (DL 96/2018) disciplined the renewals of fixed-term contracts in a more restrictive way ( the story is here ), Italy is again more "rigid" since 2019, and therefore from 2020 it is again possible to invite it to "reform" (without anyone pointing out that the reforms have already been made).
I congratulate you from 2016 to 2018 for the reforms made but I don't remember them (to me they were quite disgusting, but that's another story)!
Do you understand what it means to be masters of the narrative?
But we can also console ourselves by telling ourselves that when the only tactical element on which to rely is the strength of the opponent, having to deal with an opponent so naively predictable is probably an advantage …
This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2022/01/meno-sette-flessibilita.html on Mon, 17 Jan 2022 17:22:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.