To What Extent Does Employment Protection Legislation Impact the In-work Poverty of Non-EU Born Workers?

Abstract: Labour market integration of migrants is key for inclusive societies. Employment protection Legislation (EPL) provides the institutional foundations to facilitate such integration. While the effect of EPL on migrant’s employment is well studied, migrant’s in-work poverty has been relatively overlooked by the academic literature. This thesis therefore seeks to answer the following question: To what extent does Employment Protection Legislation impact the in-work poverty of non-EU born workers? The Insider-Outsider (IO) theory assumes that there are different effects of EPL on insiders (i.e. the employed workers) and outsiders (i.e. the unemployed labour). A set of linear regressions from ordinary least squares to one, and two-way fixed effect models is applied on panel data from Eurostat and the OECD covering 19 EU countries over 10 years to test the corresponding hypotheses such as general employment and in-work-poverty effects on natives and migrants. More specifically, the models consider interaction effects between EPL that regulates permanent and temporary work. The results suggest that the prediction of IO theory about detrimental employment effect of EPL, holds only true for natives but not for migrants. Moreover, for migrants both in-work poverty rate reduces, and employment rates increase, as labour laws tighten. This is in line with the Insider-Outsider theory. It suggests that EPL alters turnover cost as well as the competition between employed and unemployed labour, which in turn changes the bargaining power of workers regarding wage negotiation. Therefore, the results suggest that a simultaneous reform of both temporary and permanent labour laws can have benefits for migrants’ and natives’ in-work poverty.