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# **_4.3  Impacts on social cohesion_**

The degree to which a society chooses to provide job security—and the employment and distributional outcomes that result—could be expected to have implications for the inclusion, fairness, and social order elements of social cohesion. To the extent that job protections signal that firms are being socially responsible in difficult economic times, EPL can support social cohesion. By lengthening job tenure, these rules can also make a positive contribution by promoting well-being and security. However, when the effect of these rules is to deepen the “insider-outsider” divide, the opposite can occur. Countries that have responded to this situation by introducing “two-track” labor markets also can face risks to social cohesion (OECD 2011a).

Indeed, contracting arrangements have been at the centre of some prominent developments in recent years with direct relevance to social cohesion. Perhaps the most obvious example was the youth protests in France in 2006 over the proposed _Contrat première embauche_ (first employment contract) which was introduced by the French Government in response to concerns about very high youth unemployment, especially among immigrants. This lack of job opportunities had been identified as one of the reasons for the serious civil unrest the previous year. Accepting the argument that strong EPL was contributing to youth unemployment, the _Contrat première embauche_ would have made it easier for employers to dismiss workers 25 and under. However, after massive protests, the bill was never passed.<sup>37</sup> Similar dynamics may be in play in the Middle East and North Africa where high youth unemployment, aggravated by job security rules that discourage new hires, has been identified as a factor in the Arab Spring protests.<sup>38</sup> Although more flexible EPL might open up employment opportunities for youth and other “outsiders”, the French experience and, more recently, the “los indignados” movement in Spain demonstrate the political difficulties of introducing reforms that are likely—or at least are seen—to encourage precarious work.<sup>39</sup> EPL can also influence social cohesion through its potential impact on income inequality. In its recent study of inequality, the OECD (2011b: 156) found that the secular trend towards liberalizing rules for temporary contracts has had “a moderate disequalising effect on the overall earnings distribution among the entire population, mainly through the wage inequality channel”.

Finally, job security rules can effect family formation to the extent that it influences access to secure jobs. De La Rica and Iza (2004) looked at the Spanish experience where partial reforms created a rapid expansion in non-permanent relative to permanent jobs. They found that we find that fixed-term contracts delayed marriage decisions for men and entry into motherhood for women.

> 37 These protests opposed the _Contrat première embauche_ and other related measures being proposed, as well as the process by which the Government introduced the bill.

> 38 See, for example, World Economic Forum (2012).

> 39 The Spanish Government introduced measures in 2010 and 2011 to reduce firing costs for regular contracts and to increase protections for temporary workers.  Actually these initiatives were meant to break down the dual labor market which was encouraging non-permanent employment.  However, they were met with large demonstrations. Nonetheless the measures were enacted.  See Bentolila _et al._ 2011.