Employment Protection Legislation - Employment Protection Legislation Index By The OECD

Employment Protection Legislation Index By The OECD

One of the more frequently used measures of the strictness of the EPL in each country and through different years is the so-called Employment Protection Legislation Index elaborated by the OECD. This index is calculated along 18 basic items, which can be classified in three main areas:

1. Employment protection of regular workers against individual dismissal;
2. Specific requirements for collective dismissals; and
3. Regulation of temporary forms of employment.

The 18 first-digit inputs are then expressed in either of the following forms:

1. Units of time (e.g. delays before notice can start, or months of notice and severance pay);
2. As a number (e.g. maximum number of successive fixed-term contracts allowed); or
3. As a score on an ordinal scale specific to each item (0 to 2, 3, 4 or simply yes/no).

Then, these different scoring is converted into cardinal scores that are normalized to range from 0 to 6, with higher scores representing stricter regulation. Therefore, each of the different items is normalized according to weighted averages, thus constructing three sets of summary indicators that correspond to successively more aggregated measures of EPL strictness.

The last step of the procedure involves computing, for each country, an overall summary indicator based on the three subcomponents:

1. Strictness of regulation for regular contracts,
2. Temporary contracts, and
3. Collective dismissals.

The summary measure for collective dismissals is attributed just 40% of the weight assigned to regular and temporary contracts. The rationale for this is that the collective dismissals indicator only reflects additional employment protection triggered by the collective nature of the dismissal. In most countries, these additional requirements are quite modest. Moreover, summary measures for collective dismissals are only available since the late 1990s. An alternative overall index, so-called Version 1, has been thus calculated as an unweighted average of the summary measures for regular and temporary contracts only. While more restrictive than the previous one (so-called Version 2), this alternative measure of the overall EPL strictness allows comparisons over a longer period of time (since the late 1980s compared with the late 1990s).