One last point about collected data warranting a discussion concerns the fact that these data represent legal, or de jure, but not effective, or de facto, coverage. To compute the effective EPL coverage, several additional aspects need to be taken into account.
First, employment protection legislation is a set of rules that govern (a) termination of regular contracts, in case of individual and collective dismissals, and (b) hiring of employees on fixed-term contracts. The legal coverage data that we collected concern both types of regulations, and hence both types of workers—regular wage employees and wage employees holding fixed-term contracts. However, in many developing countries, but also recently in developed countries as well, total wage employment is not exhaustively measured as a sum of regular and fixed-term employees, and other categories, such as casual workers, additionally exist. According to the 1993 Resolution concerning the International Classification of Status in Employment,Footnote 7 casual workers are defined as persons “who have an explicit or implicit contract of employment which is not expected to continue for more than a short period, whose duration is to be determined by national circumstance.” As shown by De Stefano (2016), in the majority of countries, these workers are totally or partially excluded from labor protection, either de jure, or de facto. One country that particularly stands out in this regard is Australia. In this country, casual workers are explicitly excluded by law from EPL provisions. We thus also excluded them from computation of de jure coverage. In other countries, as shown by De Stefano (2016), the law is less clear cut and may exclude casual workers from some of the provisions or contain special provisions for them. Thus, we do not exclude casual workers from computing de jure coverage in all other countries, though de facto, they are likely to be excluded.
According to the ILO (2016, forthcoming), casual workers represent nearly a quarter of wage employees in Indonesia and Bangladesh and about 14 % in Uganda. If all of these workers are excluded from computation of coverage, effective, or de facto, coverage of employees would drop to about 70 % in Indonesia (in contrast with computed 94.5 % legal coverage of employees), to about 24 % in Bangladesh (in contrast with currently computed 48 % legal coverage of employees), and to about 86 % in Uganda (in contrast with currently computed 100 % legal coverage of employees).
Unfortunately, scaling up these computations to all countries is not possible, because data on casual workers is not available in all countries. Such data can also be quite volatile, to the extent that casual employees represent a margin of adjustment for employers (ibid). However, it is important to bear in mind that the size of the casual work phenomenon can be important and that the role of EPL in countries with sizeable casual work would be further overestimated. The effective coverage of employees computed by excluding casual workers would also be considerably more endogenous to the level of EPL, in contrast to the legal coverage, because recourse to casual work may be propelled by motivations to avoid complying with EPL. Similarly, new forms of employment, such as crowd-work through internet platforms (when classified as wage employment), disguised self-employment, ambiguous employment relationships, or other forms, may arise to avoid EPL and lead to a decrease in effective EPL coverage.
Another issue to account for when computing effective coverage would be the issue in compliance with labor regulations. In other words, an effectively covered worker is a wage employee working for an employer complying with EPL. Statistics on such employees can be collected though firm and worker surveys. Some very rare examples of such surveys include the Indonesian Family Life Survey (IFLS) and the National Labour Force Survey (Sakernas), used by Brusentsev et al. (2012) to assess receipt of severance pay among dismissed workers. Restricting the sample to private and public sector employees covered by employment protection legislation and who experienced a job separation, these authors find that two thirds of all eligible employees who separated from a job do not receive their severance payment. Moreover, workers obtain, on average, only 40 % of severance payments due to them; in other words, most of the complying firms are complying only partially. The authors also suggest that compliance and levels of severance pay set by law exhibit sizeable trade-offs. It would be useful to include compliance questions in labor force surveys in order to get a better understanding of EPL compliance, and hence effective EPL coverage, in other countries.
Lastly, a related issue is the extent of informality of employment relationships, as well as a proportion of written versus oral contracts in an economy. For example, in countries such as Guatemala, Morocco, or Cameroun, over 60 % of workers do not have written contracts (ILO, 2016), making it difficult for them to claim any EPL entitlements even if the law in principle provides for them. Thus, the effective EPL coverage would be even lower in these countries, depressing the aggregate role of EPL even further.
At the same time, it would be wrong to compute effective coverage by excluding all informal workers from it. This is because legislation often provides a “lighthouse” effect for workers in informal employment relationships, whereby formal laws set a “social norm” and become a reference for bargaining even among informal waged employees and their employers.Footnote 8 This means that even some informal workers may be covered, both in theory and in practice, by EPL. This means that in countries with non-negligible informal sector, effective coverage would situate somewhere in between the legal coverage and the legal coverage that excludes informal workers. Moreover, while employment under oral (often viewed as informal) arrangements is usually considered as offering less stability, in many countries (such as Ireland, Burkina Faso, or Zambia—for some contracts), verbal employment agreements are also legally binding, with the same force as written agreements, and hence, at least in principle, unlawful dismissals may be contested in courts. And conversely, in certain countries, workers under formal written contracts may de facto be deprived of EPL protection: for example, in Russia, it is a common practice to require workers to deposit, at the hiring stage, an application for a voluntary quit which does not contain a specified date, thus rendering Russian employment relations de facto employment at will (Gimpelson et al., 2010). Similar practice has been anecdotally reported in several Eastern European countries. Employers in formal employment relationships may also bypass employment protection legislation by pressuring workers to quit voluntarily and by harassing them (Lepage-Saucier and Wasmer, 2016), negotiate disguised “consent” dismissals, or offer compensation payments below the entitlement levels.
All in all, informality aspect of employment relationships, as well as the unavailability of a written contract, has ambiguous relevance for EPL coverage: they clearly diminish the extent of effective coverage as compared to legal coverage, but the size of this reduction is country-specific and hard to evaluate on a consistent basis. More generally, given the remarks outlined above, it would be fair to conclude that the legal coverage data that we collected represents the highest possible upper bound of EPL coverage, which is substantially higher than the effective coverage that may exist in any given country.