Afternoon roundup

The worthies on the closing of the browser tabs:

• Australian water rats have figured out that the hearts and livers of poisonous cane toads are fine to eat. I would love to know how rats figured this out, and how the practice spread. 


• Australia's poisonous legislators have passed a piece of anti-terrorism legislation every 6.7 weeks since September 11, 2001. The water rats may not help in getting rid of this nuisance.


• A perhaps-unintended consequence of anti-Uber activism in California making it harder for people to work as contractors: dancers at strip clubs become employees when many didn't want to.


• Merivale NIMBYs.


• Another for the "I guess we just can't have nice things" file. The Police Minister wants to allow pill testing at events; it's an excellent harm-reduction strategy. New Zealand First has blocked it, reckoning it would increase drug use. And while I'd be pretty confident that Labour and the Greens could find enough supporters for pill-testing in the National/ACT caucuses than would be needed to get it over the line, the usual politics stuff means we can't have nice things. 

90 Days

Motu's had a look at the effects of the 90 day trial legislation. Under that legislation, employers could hire employees on a trial basis and dismiss them relatively easily within that 90 day window. Supporters of it expected it to encourage employment of riskier employees; opponents expected substantial churn: that employers would somehow figure it made sense to hire people for three months, fire, rinse and repeat.

The Motu study, undertaken by Nathan Chappell and Isabella Sin, two fine Canterbury economics graduates, uses a beautiful little natural experiment. Firms smaller than 20 employees were allowed to use the provision; those over it were not. At least for a time. Afterwards, it extended. But you had a nice little period in which there was a discontinuity at 20 employees. They then looked at hiring data in for firms in the 15-25 employee range. If the bill had effects, that's where the difference would show up.

Using that experiment they find, well, very little in the aggregate. There was no particular boost to employment, but neither was there any churn. It didn't seem to do anything at all.

But there is a bit of a problem in focusing on the aggregate. If you're looking at effects across all firms, and only a minority of firms would ever want to use the trial periods, then if there were an effect for that group of firms, you likely wouldn't see it in the aggregate data. The data doesn't let them tell which firms actually elected to hire new employees on trial arrangements, and which offered permanent contracts from the get-go.

Or to put it another way, suppose that some medicine reduced your chance of death from a relatively uncommon disease by 10%. You wouldn't notice any effect at all in overall aggregate national death rates. But you would notice it if you looked in the places where it were used.

This could matter. They cite MBIE work showing greater uptake of trial periods in construction and wholesale trades and low use in education and training; they then find a about a 10% increase in hires among small firms in industries known to use trial periods who were eligible to use trial periods as compared to small firms in the same industry that were just a bit too big to use trial periods. Those small firms eligible for 90-day trial periods in high-use industries had about a 7% increase in long-term hires.

Evidence that it particularly encouraged employment of riskier employees is rather weak, or at least riskier as measured by things like being a former beneficiary.

On the whole, it looks like the policy provided an increase in employment in construction companies and wholesale trades, no increase in churn or dismissals. If you think that people bear substantial psychological costs of a 90-day trial period where actual dismissal rates are trivial, then you might not like the policy. If you think that those are likely to be minor relative to the employment benefits in the sectors that need it, then the policy remains a good one. And if you're going to weigh the psychological costs of uncertainty for employees under trial periods, weigh too the psychological costs for employers having to make hires under conditions where firing is very difficult.

It might not be as beneficial as we had hoped at the outset, and so it might have been a mistake when evaluated against other beneficial policies on which the government could have expended political capital (youth minimum wages, for example), but it's a policy well worth continuing.

Crossposted from The Sandpit.

Zero-hour

The Labour Party's come out against zero-hour contracts: an employment practice where employees have to be on call for what shifts might come, but with no particular guarantees of how many hours might come or when those hours may be required.

Jim Rose discusses things in a four-post series, which takes a more academic take on the question.

Here, Jim argues that a good start would be reckoning why employers and employees would agree to the deal in the first place. Unless labour markets are highly uncompetitive with employers having massive power over employees, employers should have to pay a per-hour premium if zero-hour contracts are a hassle for workers. If we see zero-hour contracts in Christchurch, for example, I don't think we can first-cut look to power as the answer: plenty of labour demand there.

In the second part, Jim notes that the fixed costs of employment are such that you shouldn't expect zero-hour contracts: you'll typically do better with one 40-hour worker over two 20-hour workers barring some kind of mandatory benefit for 40-hour workers. I don't think there's any set benefits threshold that obtains for 0-hour contract workers as compared to 20-hour workers though. Each additional employee means recruitment, overhead, HR and training costs; why pay all that out on somebody who might only work 3 hours a week?

You might do it if there are strong and somewhat unpredictable fluctuations in product demand. Jim notes premiums for part time jobs in seasonal industries; I'd also expect some of those employers could also see advantages of zero-hour contracts. If it's raining, you're less likely to send a team of fruit-pickers out; when it's sunny, you need all hands on deck. Jim expects, rightly I think, that zero hour contracts would be most likely in jobs with low recruitment costs and where specialised training needs are low. While you might think that could point to potential power issues, think twice: specialised skills can be more likely to make you beholden to particular employers.

In part 3, Jim expects workers with low fixed costs of working will flip into the zero-hour sector while those with higher fixed costs would prefer lower hourly rates but more guaranteed hours. Again, read "lower" here as meaning "relative to what they could elsewhere earn".

Finally, Jim relates all this back to problems of team production.

Jim makes one big and important point in all this: unless we have a good idea about why firms are moving to this contract structure, and why employees are sticking with it rather than flipping instead to other employers, meddling in the arrangements via policy is pretty risky.

Parental leave and benefits

Put yourself in the place of an employer faced with two excellent and similarly qualified candidates for a position. You'd be very happy with either. But one, a young women, comes with maternity leave risk. If she decides to have a child, you will bear costs of worsening productivity over the course of the pregnancy despite her best efforts, costs of finding a temp worker to cover her position while she is on maternity leave, and the uncertainty of whether she will indeed return when leave concludes. She may also wish to move to flexible time arrangements on return. The other, male, doesn't. You're running a small business where losing a skilled worker for a short period is a very real burden, even if somebody else is paying her salary while she's on the government's paid parental leave scheme. Whom do you choose?

Cactus Kate makes the case:

I will never apologise for being honest enough to say that I don't like employing women of child bearing age especially if they have just got married or are loved up with a boyfriend because you know the next step. Babies. It is bad enough for a small business losing a staffer for 12 (as it is in HK at 4/5th pay) or 14 weeks, try employment laws where you can't sack a woman while she is pregnant (that's nine months of secure employment) even if she is hopeless at her job or not turning up, try the woman who at 11 weeks and a few days of investment and patience waiting for her to return to work, then hands you their bloody resignation. Try co-workers having to pick up the slack while she is away as you can't afford a temp.

In many cases they cope fine which means on return to the workforce it's pretty clear the new mothers position can be made redundant anyhow. This is the reality of parental leave. It indicates pretty quickly to an employer just how crucial a woman is or isn't to an operation. In many ways it's a rehearsal for redundancy.

We can wish that employers would willingly take on these costs. And many who do find that they wind up with a very loyal and committed employee if they do. But it is a risk. And it's a risk that, at least in data from a very nicely designed field experiment in France, has employers shy away from employing women with high maternity risk. Lower employment isn't the only way that the policy's costs can be shifted; Jon Gruber finds that costs of mandated maternity benefits through US employer-provided health insurance tends to be borne through lower wages for women [HT: @KevinMilligan]. And it's a pretty plausible candidate explanation for the lesbian pay gap; my excellent honours student, Hayden Skilling, is investigating this as his honours project this year.

New Zealand currently requires employers to hold a woman's position open for a year if she takes maternity; the government provides paid leave scaled to the woman's salary (and subject to a relatively low cap) for 14 weeks. The Labour Party proposes extending this to 26 weeks; the bill has been drawn from the ballot. It is likely to pass first reading, but likely to be killed afterwards because of the budgetary implications.

Were it implemented, I'd expect that the policy will increase the amount of time that women spend on maternity leave. In Canada, Baker and Milligan found that a doubling of the compensated maternity leave entitlement significantly increased the amount of time women spent on maternity leave.* Employers will bear costs despite that the paid leave entitlement is covered by IRD: it will be harder for employers to cover leave internally and so more of them will have to find replacements willing to work on temporary contracts. A longer time outside of the workplace means skills have longer to erode. Women are also more likely to want to return on part-time or flex-time arrangements after longer periods outside of the workforce; Schott finds that the American Family and Medical Leave Act increased women's likelihood of returning to work part-time rather than full-time.** Finally, we may expect increased labour market participation among women anticipating maternity leave, but also increased employer reluctance to take on women of higher maternity risk except at lower wages. But, I don't have a great sense of the incremental cost above existing leave entitlements; what's true at the margin might not cash out as much in the aggregate.

If Labour's economics were just a bit stronger, they'd be trying to couple their policy with some kind of compensation mechanism for employers whose workers take maternity leave rather than embedding the lump of labour fallacy into the bill's explanatory note:

Extending paid parental leave from the current entitlement of 14 weeks to 26 weeks would support families and also create jobs across the economy as employers engage staff to replace those on paid parental leave. As the majority of paid parental leave is uplifted by women, it has the added benefit of creating jobs in areas of the economy where women work, while supporting families and the well-being of children.

Why not advocate for a maximum 35-hour work-week to encourage employers to hire more temp workers to cover the work not done?

* While the Canadian change increased breastfeeding rates, one of the NZ bill's other stated purposes, it had no effect on child health outcomes.

** While Schott finds increased workplace flexibility encourages post-natal female employment, we might reasonably worry that increased likelihood of moving to part-time or flex-time arrangements reduces an employer's willingness to invest in an employee's human capital or to take on the worker in the first place except at lower wages.

Note: updated a couple of times for clarity and to add links to a couple of helpful tweets from Kevin Milligan and Frances Woolley.

Update 2: @askessler recommends this IZA piece showing no long term benefits to kids from paid maternity leave extensions in Germany. 

Easy to fire means easy to hire

In 2009, National implemented a policy making it easier for small employers to fire workers within a 90-day trial period. Most economists would reckon that barriers to firing are really barriers to hiring and so the policy ought to make it more likely that a company will try on a new worker. Bill Kaye-Blake at NZIER's preliminary analysis says that firms subject to the policy had a smaller decrease in hiring during the recession than did larger firms not subject to the policy.

That's consistent with what we'd expect. But we'd also want to know:

• What was the pattern in hiring declines in prior recessions by firm size? Are larger or smaller firms more likely to freeze hiring plans? If it were previously the case that small firms were quicker to cut hiring, NZIER's estimates understate the real effects.
• We need to know something about firings at those firms as well. I'd expect somebody at one of the leftie blogs to make the claim that those firms were hiring more because they were firing more and that it's all just churn. That seems very unlikely. But it would be nice to have the data.

Nice stuff NZIER. HT: Bernard Hickey.

Chutzpah

If a reality TV show sent you to a tropical island filled with gorgeous women (and men), you'd probably not be too happy about being voted off the island. But would it occur to you to sue for wrongful dismissal? It never would have occurred to me, but perhaps I'm insufficiently Gallic.

Reality television faces a bleak future in France after contestants who spent 12 days flirting with the opposite sex on a sun-drenched island won the right to be treated as salaried workers.

In a ground-breaking ruling, the supreme court in France awarded three contestants on the French version of the programme Temptation Island compensation of about €11,000 (£9,500) each. The judges ruled that the trio were entitled to full employment contracts — including overtime, holidays and even damages for wrongful dismissal upon elimination from the show.
...
The case was brought by Anthony Brocheton, Marie Adamiak and Arno Laize, who said that their participation in l’Ile de la Tentation amounted to a job in terms of French labour laws, which stipulate that no one can be made to work more than 35 hours a week. The programme involves scantily clad men and women testing the faithfulness of competing couples with massages, dances and beach walks on an island off Tulum on the Mexican coast.
...
The supreme court upheld the lower tribunal judgment, which said: “Tempting a person of the opposite sex requires concentration and attention.”

There's a reason economists make fun of French labour laws.