Work Effort During and After Employment Probation: Evidence from German Personnel Data

Summary The degree of employment protection affects employment flows as well as work effort of employees. Whereas the former aspect has been analysed in many studies, the impact of employment protection on work effort has been analysed in few recent studies. Theory predicts that employment protection reduces work effort because employee shirking cannot be that easily punished by the firm, which decreases the separation probability and increases the expected utility for a shirker in efficiency wage models. Personnel records of a German company are used to assess the impact of lower employment protection during probation on worker absenteeism as a proxy for work effort. The main finding is that new white-collar workers are on average more than 50 percent less likely to be absent and have on average more than 60 percent fewer absent working days during the three months probation period compared to the nine months period afterwards. These relative effects differ only slightly between the genders and between different age and educational groups.