Did recent reforms facilitate EU labour market adjustment? Firm level evidence

The paper analyses the effectiveness of the labour market reforms implemented in a number of EU countries during the recent crisis using qualitative data from a firm-level survey conducted in 2014-2015 in 25 EU countries. This data set contains information on firms’ perceptions on the easiness to adjust labour input and wages in 2013 compared to the prereform period together with firms’ and workers’ characteristics and information on the economic and institutional environment in which firms operate. We find that firms in countries that undertook wider labour markets reforms found it easier to adjust employment and wages, and they largely attribute this to the reforms in labour legislation. Consistent with the efficiency wage theory, we find that firms employing a higher share of skilled employees were less likely than those with relatively more unskilled workers to find it easier to adjust wages and lay off employees. Furthermore, firms applying firm-level agreements found it easier to adjust wages in 2013 than in 2010 suggesting that they benefited from the increased flexibility provided by these agreements.