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Does labour regulation affect technical and allocative efficiency? Evidence from the banking industry

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posted on 2023-06-15, 20:49 authored by Emmanuel Mamatzakis, Mike G Tsionas, Subal C Kumbhakar, Anastasia Koutsomanoli-Fili
In light of the ongoing restructuring of the European banking industry and the challenging macroeconomic environment, banks have increased their efforts to reduce operating costs. Yet, the institutional features that affect banks’ ability to adjust costs and in particular personnel expenses, which comprise a significant part of banks’ non-interest cost structure, have not been adequately studied. This paper investigates the effect of labour market institutions and regulations on bank performance in 15 European countries over the period 2005-2010, using the Fraser index for labour regulation and its disaggregated sub-components. We propose a novel methodology to measure performance, based on the seminal work of Kumbhakar and Tsionas (2005), which allows the estimation of technical and allocative efficiency and the examination of the effect of labour market regulations in a single stage. Results indicate the existence of a positive relationship between the liberalization of EU labour markets and allocative efficiency, while the effect on technical efficiency appears to be negative, although not statistically significant. When looking at the disaggregated components of the labour index, we further confirm that different forces are at play.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Banking and Finance

ISSN

0378-4266

Publisher

Elsevier

Issue

Supp 1

Volume

61

Page range

S84-S98

Department affiliated with

  • Business and Management Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2015-11-17

First Open Access (FOA) Date

2017-03-08

First Compliant Deposit (FCD) Date

2015-11-17

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