Evidence-based policy making

IZA World of Labor is an online platform that provides policy analysts, journalists, academics and society generally with relevant and concise information on labor market issues. Based on the latest research, it provides current thinking on labor markets worldwide in a clear and accessible style. IZA World of Labor aims to support evidence-based policy making and increase awareness of labor market issues.

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Identifying and measuring economic discrimination

Using decomposition methods helps measure both the amount and source of economic discrimination between groups

Sergio Pinheiro Firpo

Differences in wages between men and women, white and black workers, or any two distinct groups are a controversial feature of the labor market, raising concern about discrimination by employers. Decomposition methods shed light on those differences by separating them into: (i) composition effects, which are explained by differences in the distribution of observable variables, e.g. education level; and (ii) structural effects, which are explained by differences in the returns to observable and unobservable variables. Often, a significant structural effect, such as different returns to education, can be indicative of discrimination.

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  • Trade and labor markets: Lessons from China’s rise

    The China Shock has challenged economists’ benign view of how trade integration affects labor markets in developed countries

    David H. Autor, February 2018
    Economists have long recognized that free trade has the potential to raise countries’ living standards. But what applies to a country as a whole need not apply to all its citizens. Workers displaced by trade cannot change jobs costlessly, and by reshaping skill demands, trade integration is likely to be permanently harmful to some workers and permanently beneficial to others. The “China Shock”—denoting China’s rapid market integration in the 1990s and its accession to the World Trade Organization in 2001—has given new, unwelcome empirical relevance to these theoretical insights.
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  • Managerial quality and worker productivity in developing countries

    Business consulting and supervisory skills training can improve firm productivity and labor relations

    Achyuta Adhvaryu, February 2018
    Productivity differences across firms and countries are surprisingly large and persistent. Recent research reveals that the country-level distributions of productivity and quality of management are strikingly similar, suggesting that management practices may play a key role in the determination of worker and firm productivity. Understanding the causal impacts of these practices on productivity and the effectiveness of various management interventions is thus of primary policy interest.
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  • The labor market in the UK, 2000–2016

    Unemployment rose only modestly during the Great Recession and fell strongly since, with productivity and wages lagging behind

    Experiences during the Great Recession support the view that the UK labor market is relatively flexible. Unemployment rose less and recovered faster than in most other European economies. However, this success has been accompanied by a stagnation of productivity and wages; an open question is whether this represents a cyclical phenomenon or a structural problem. In addition the planned exit of the UK from the EU (Brexit), which is quite possibly the greatest current threat to the stability of the UK labor market, is not yet visible in labor market statistics.
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  • Is high-skilled migration harmful to tax systems’ progressivity?

    Understanding how migration responds to tax changes will aid in setting the progressivity of a tax system

    Decreased transportation costs have led to the transmission of ideas and values across national borders that has helped reduce the barriers to international labor mobility. In this context, high-skilled individuals are more likely to vote with their feet in response to high income taxes. It is thus important to examine the magnitude of tax-driven migration responses in developed countries as well as the possible consequences of income tax competition between nation states. More specifically, how does the potential threat of migration affect a country’s optimal income tax policies?
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  • The labor market in Finland, 2000–2016

    An almost decade-long economic stagnation left an unemployment problem for an aging society

    Tomi KyyräHanna Pesola, January 2018
    Finland’s population is aging rapidly by international comparison. The shrinking working-age population means that the burden of increasing pension and health care expenditures is placed on a smaller group of employed workers, while the scope for economic growth through increased labor input diminishes. Fiscal sustainability of the welfare state calls for a high employment rate among people of working age. Recent increases in employment among older groups contribute favorably to public finances, but high overall unemployment and a large share of the long-term unemployed are serious concerns.
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  • Climate change and the allocation of time

    In various ways, climate change will affect people’s well-being and how they spend their time

    Marie Connolly, January 2018
    Understanding the impacts of climate change on time allocation is a major challenge. The best approach comes from looking at how people react to short-term variations in weather. Research suggests rising temperatures will reduce time spent working and enjoying outdoor leisure, while increasing indoor leisure. The burden will fall disproportionately on workers in industries more exposed to heat and those who live in warmer regions, with the potential to increase existing patterns of inequalities. This is likely to trigger an adaptation, the scope and mechanisms of which are hard to predict, and will undoubtedly entail costs.
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  • Why is youth unemployment so high and different across countries?

    Young people experience worse labor market outcomes than adults worldwide but the difference varies greatly internationally

    Francesco Pastore, January 2018
    In Germany, young people are no worse off than adults in the labor market, while in southern and eastern European countries, they fare three to four times worse. In Anglo-Saxon countries, both youth and adults fare better than elsewhere, but their unemployment rates fluctuate more over the business cycle. The arrangements developed in each country to help young people gain work experience explain the striking differences in their outcomes. A better understanding of what drives these differences in labor market performance of young workers is essential for policies to be effective
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  • Central exit exams improve student outcomes

    External school leaving exams raise student achievement and improve how grades are understood in the labor market

    Ludger Woessmann, January 2018
    Reaching the policy goal of improving student achieve­ment by adding resources to the school system has often proven elusive. By contrast, ample evidence indicates that central exit exams constitute an important feature of a school system’s institutional framework, which can hold students, teachers, schools, and administrators accountable for student outcomes. While critics point to issues such as teaching test-only skills, which may leave students ill-prepared for the real world, the evidence does not bear this out. Overall, central exams are related to better student achievement, favorable labor market outcomes, and higher economic growth.
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