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Opening Hours and Employment in the Retail Sector: Quasi Opening Hours and Employment in the Retail Sector: Quasi-Experimental Evidence from Germany Bossler, Mario * Oberfichtner, Michael † Institute for Employment Research University of Erlangen-Nuremberg Preliminary, August 2013. Abstract We study the effect of a deregulation in shop opening hours on employment in food retailing. Our identification relies on changes in restrictions of business hours across German states that allow for a difference-in-differences approach. Using data on the universe of German establishments, we find that lifting restrictions on business hours increases total employment modestly. This effect is driven by an increase in part-time employment while full-time employment is not affected. The statistical significance of these effects hinges on the assumptions on error correlation and we hence report inference robust to clustering at different levels. * Institute for Employment Research, Department Establishments and Employment, Regensburger Str. 104, 90478 Nuremberg, e-mail: [email protected], phone: +49-911-179-3043. † Friedrich-Alexander University Erlangen-Nuremberg, Department of Economics, Lange Gasse 20, 90403 Nuremberg, e-mail: [email protected], phone: +49-911-5302-771. For helpful comments and suggestions, we thank Sascha Becker, Thiess Büttner, Boris Hirsch, Robin Naylor, Thorsten Schank, Claus Schnabel, Till von Wachter, Fabian Waldinger, Matthias Wrede, Jeffrey Wooldridge, and Thomas Zwick as well as participants of the 16th BGPE workshop and seminars at the universities of Erlangen-Nuremberg and Warwick. Michael Oberfichtner visited University of Warwick during the work on this article, and he is thankful for their hospitality. Introduction Despite a general trend towards deregulation, restrictions of shop opening hours are still widespread. Restrictions often take the form of blue laws and restrict business activities on Sundays. However, some regulations also prohibit trade for some hours during weekdays. For instance, in a number of European countries like Austria, Belgium and Finland such restrictions are in place as they also were in Italy until 2012 (Metro 2012, 64–65). Changes in the regulation of shop opening hours typically cause heavy public debates. A recent example is Italy, where Monti’s reforms in 2012 intended to foster the economy included a deregulation of opening hours. Interestingly, the discussion of labour market effects is very vivid with proponents claiming that a deregulation will create jobs in retailing while opponents claim that it costs jobs and harms small retailers (see for instance Financial Times 2012). Similarly, a major trade union in Germany claims that deregulating business hours would create part-time jobs at the expense of full-time jobs (verdi 2006). In this paper, we provide quasi-experimental evidence on the effects of deregulating daily opening hours on total employment as well as part-time and full-time employment. Our analysis focus on the total effect on the food retail sector, taking into account changes in market entries and exits. Our identification strategy relies on differences in the regulation of opening hours across German states (“Bundesländer”) after a major reform of federalism in 2006. While regulations were identical prior to the reform, states could implement their own law afterwards, which all states but Bavaria did. This creates exogenous variation in the restrictions faced by retailers. Comparing shops in Bavaria to shops in other states, we implement a difference-in- differences approach. Unlike in many other settings, where one group is treated and one has to come up with a suitable control group, we need to construct a treatment group that matches 2 our control group. As a first step, we restrict our attention to West Germany since the parallel trends are more plausible within this group. Furthermore, the sample is limited to states with similar employment trends before the reform. To ensure that our control group is not affected by the deregulation, e.g. via cross-border shopping, we restrict our attention to food shops and perform additional robustness checks. Given the construction of our sample, the estimates should only be interpreted as an average treatment effect on the treated for the respective states and sector. Using the 100% sample of the IAB Establishment History Panel, which comprises information on all establishments in Germany with at least on employee, we find a small positive effect on employment in food retailing. This effect is driven by an increase in part- time employment, while full-time employment is not affected. Looking at the effects on shops already existing before the reform, we find that the deregulation of opening hours most likely had a negative impact on employment in small shops whereas employment in larger shops benefited. The statistical significance of our results pends on the assumptions one is willing to make regarding the error distribution and we therefore report results using different types of inference. Previous economic research neither offers clear theoretical predictions nor empirical evidence regarding the employment consequences of deregulating opening hours during weekdays. From a theoretical point of view, Gradus (1996) argues that the total employment effect of longer opening hours at the plant level is unclear, since it is a combination of several effects. Longer opening hours could increase sales and hence the derived labour demand. Another positive effect on employment could stem from the minimum number of workers necessary to keep a shop open. In contrast, if there are congestion costs that decrease labour productivity, the smoothing of sales over more hours could decrease labour demand. However, all of these arguments apply to a single shop, though changes at the market level, for instance in terms of 3 shop closure and changes in the market structure as modelled by Wenzel (2010; 2011), could also affect labour markets. On the empirical side, there is some quasi-experimental evidence supporting a positive employment effect of lifting Sunday opening restrictions (see Burda / Weil 2005; Goos 2005; Skuterud 2005). However, empirical research has little to offer regarding restrictions of opening hours during day time. The paper proceeds in section 2 with a description of the institutional setting of the regulation of shop opening hours. Section 3 presents the dataset and sample construction for the analysis. Section 4 starts with a descriptive analysis, while section 5 presents the sophisticated regression estimates. Institutional setting The 2006 reform of German federalism provides the framework for the analysis. In Germany, the federal states have legislative power on any topic unless the constitution ( Grundgesetz ) states otherwise. In these cases, there are different forms of federal competence, ranging from areas, where the federation has exclusive competence to fields where competences are shared in different ways. The reform of federalism aimed to ease legislation procedures by clarifying federal and state competencies as well as the modes of cooperation. At the same time, it had to keep a balance of power between the federation and the states. To achieve this, legislative power for some areas has been transferred from the federal states to the state and vice versa. The draft of the reform bill was discussed for the first time in both chambers of parliament in March 2006. This draft was based on the work of a multi-party commission headed by leading politicians of the two major parties, and it was already informally approved by major political actors: the parliamentary groups of the governing coalition, the conference of the prime ministers of the federal states and the federal cabinet. It was formally approved by both chambers in June and July 2006. It finally came into force on 1 September 2006. Given the 4 broad support for the first draft, it is not surprising that the final bill was very similar to the draft and the reform could hence be anticipated already in early 2006. The reform moved legislation on shop opening hours from the exclusive federal domain to the state domain. Before the reform, a federal law (Ladenschlussgesetz ) prohibited shops to open on Sundays and holidays as well as on Monday to Saturday before 6am and after 8pm; with few exceptions such as for shops in train stations and airports. After the reform of federalism, this federal law stayed in place unless a state issued a law of its own. Between 15 November 2006 and 1 April 2007, new regulations of shop opening hours came into force in all West German states but Bavaria. Table 1 gives an overview of the regulations applying Monday to Saturday after April 2007. In seven out of these nine states, all restrictions on opening hours from Monday to Saturday were lifted. One state allowed for longer opening hours in the evening, until 10 pm, and one state, the Saarland, adopted a law with only minor changes in comparison to the federal law. The restrictions of opening hours were hence changed for shops in eight states in a very similar way. Restrictions for Sunday openings were by and large unaffected and are therefore not further discussed.3 While there is no systematic evidence on changes of opening hours after deregulation, the previous restrictions appear to have been binding for many shops. Kaapke et al. (2007) report the results of a survey in several cities in early 2007. Shoppers were asked whether the shops where they typically buy some product are open after 8pm. Depending on the type of shop, between 9 per cent (stores for leather goods) and 47 per cent (food stores) said that this was the case, with 37 and 21 per cent not knowing. As a whole, these numbers show that the previous restrictions on opening hours were a binding constraint for a substantial portion of the retail industry and that the reform affected shops’ behaviour. 3 Regarding East Germany the timing and the content of the new laws were very similar. 5 Looking at the two states without major changes, Bavarian shops appear to be better suited as control group for two reasons.
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