In the context of accelerating automation, changes in labour law that overly protect workers or excessively deregulate labour markets may do more harm than good for Europe’s youngest employees, a new study by the EU-funded Project WeLaR has found.
“To protect youth from the damaging effects of robot exposure they need employment policies that strike a balance between flexibility for firms and security for workers,” said Fabrizio Pompei, an associate professor of applied economics at the University of Perugia, and co-author of the study. “When employment legislation becomes too protective for workers or too lax for companies, Europe’s young workers are the ones who pay the price.”
Automation has had a negative effect on employment trends worldwide, though the degree of job losses varies widely. In the United States, research has found a clear negative effect on wages and employment, while in Europe, where worker protections are tougher, evidence that robot adoption will accelerate unemployment is mixed.
Pompei and his colleagues were interested in whether changes in labour and product market regulations were able to shield the most vulnerable groups – young and old workers – from the negative effects of automation. They analysed data from Eurostat, the OECD, and other sources for 12 European Union economies from 2006 to 2018.
The researchers found that increased exposure to robots resulted in a 1.6 percent decrease in employment rates. However, when the change in employment protection legislation was considered as a mediator, only young workers (aged between 20-29) were negatively affected by automation exposure, with older workers (60+) unaffected. The impacts of a second mediator, product market regulation, were negligible.
Over the period analysed, labour market regulations, such as the level of severance payments and the length of notice periods, were changing in the EU in both directions. Going to extremes in either direction produced more negative effects on the youth employment rate than leaving protection levels unchanged. Researchers found that higher robot adoption reduced the share of younger workers in the labour force both in countries that increased employment protection (the Netherlands and Belgium) and in those that deregulated their labour markets (Greece and Spain).
The negative effect of deregulation is more obvious. In lax regulatory regimes, when tasks performed by humans are automated, firms can easily lay off workers. Yet the data also shows increasing labour protection hurts the job prospects of Europe’s youngest workers.
One tentative explanation of why younger workers face more difficulties in finding employment is that stricter protection rules increase the cost of dismissing employees. As a result, companies refrain from hiring and invest in training of already employed, older workers to help them complement robots’ tasks.
“Essentially, employers may be less willing to hire under these circumstances due to negative expectations of higher dismissal costs,” said Piotr Lewandowski, president of the board at the Institute for Structural Research, in Warsaw, and a study co-author.
Lewandowski, P.,Pompei, F., Perugini, C., and Szymaczak, W. (2023). Labour and product market regulations and vulnerability (Deliverable 5.1). Leuven: WeLaR project 101061388–HORIZON.
The paper is available here.
