Evidence-based policy making

While Mexico has improved the education of its labor force, maintained a stable macroeconomic environment, and been friendly to international trade, its labor market still faces many challenges. In particular, Mexico has difficulty creating high-paying jobs: the share of informal employment has remained stagnant for the last 20 years, and, by 2025, remains above 50%. These problems are particularly poignant in southern Mexico.

It is common practice to incorporate additional covariates in empirical economics. In the context of regression discontinuity (RD) designs, covariate adjustment plays multiple roles, making it essential to understand its impact on analysis and conclusions. Typically implemented via local least squares regressions, covariate adjustment can serve three main distinct purposes: (i) improving the efficiency of RD average causal effect estimators, (ii) learning about heterogeneous RD policy effects, and (iii) changing the RD parameter of interest.

The Netherlands has long been an example of a highly and centrally institutionalized labor market paying considerable attention to equity concerns. Fracturing of the labor force by the rapid demise of the single-earner model and accelerating immigration, falling union density, and reductions in welfare state provisions have shrunk labor’s market power centrally and decentrally. Wages lagged far behind productivity growth, job security strongly declined and wage inequality increased. This comes to the fore with a lack of offensive union power when after 2016 labor demand accelerated and the economy and employment quickly reached new heights after the pandemic crisis.

The Indian economy entered an ongoing process of trade liberalization, domestic deregulation, and privatization of public sector units in 1991. Since then, per capita output has increased significantly, while the overall unemployment rate has remained moderate. However, labor force participation rates fell sharply, though recovering for women since 2020. Youth unemployment remains high, an overwhelming proportion of the labor force continues to work in the informal sector, labor movement out of agriculture is slow, and there is little evidence of a sustained rise in wages for either unskilled rural or factory workers.

In the first two decades of the 2000s, Turkey has relied on structural change from traditional to modern sectors on the one hand and educational compositional change on the other hand to create formal employment in the modern sector. In 2000 the share of formally employed salaried employees in total employment was less than 40% for men and 30% for women. By 2021, this ration converged to 60% for men and women. Formal employment has increased for both men and women and the gender gap in formal employment declined substantially until 2020. However, relying on structural change and education to improve job quality has likely run its course. Since Covid-19, time-related underemployment has increased from virtually zero to 10% of the labor force and wages are stagnating if not declining.

China experienced significant economic progress over the past few decades, with an annual average GDP growth of approximately 8.6%. Population expansion has certainly been a contributing factor, but that is now changing as China rapidly ages. Rural migrants are set to play a key role in compensating for future labor shortages. However, they still face significant barriers to live in cities permanently, resulting in surging waves of return migration in recent years. Additionally, China faces a low fertility rate of 1.01 births per woman, although the population control policy has been relaxed. Millions of people are employed in the food delivery and courier industry, yet with little social benefit and insurance, which poses potential challenges for China’s labor market stability.

In 2024, Italy's labor market has reached record-high levels of employment and permanent contracts, marking a significant recovery from past downturns. Yet, persistent challenges remain. Youth unemployment and labor market duality remain high, and wages and productivity have stagnated for over two decades. Although several major labor market reforms have aimed to increase flexibility and reduce segmentation, many of their effects remain contested. Female participation has risen and long-term unemployment has declined, yet regional disparities remain deep and persistent, with the south lagging behind. Self-employment is widespread but often low income and non-entrepreneurial, while undeclared work continues to weigh on labor standards and fiscal capacity. Targeted reforms are needed to improve labor market inclusion, reduce fragmentation, and support sustainable growth.

In the early 2000s, Hungary’s employment rate in the working-age population was below 60%. That is now a distant memory, as labor force participation is among the highest in the EU, unemployment is consistently low, and the purchasing power of wages keeps growing at a high rate. While undoubtedly a success story, it is also a cautionary tale of coerced activation, labor market segmentation, rising inequalities, declining social mobility, and strained employment relations.