IZA World of Labor

Active labor market programs

  • Trade, foreign investment, and wage inequality in developing countries

    Exposure to foreign trade raises the skill premium in countries with a large stock of educated workers and reduces it in others

    Alessandro Cigno, November 2015
    Liberalization of foreign trade and investment raises the domestic ratio of skilled to unskilled wages (skill premium) if the country has a sufficiently well-educated workforce, but lowers it otherwise. Wide wage inequality is undesirable on equity grounds, especially in poor countries where the bottom wage is close to the breadline; but it gives parents an incentive to invest in their children’s education. The incentive will be ineffective, however, if parents cannot borrow for their child’s education because of underdeveloped credit markets or because they are too poor to finance the investment from their own income and savings.
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  • Pensions, informality, and the emerging middle class

    Getting the incentives right for firms and workers should be the priority in the labor formalization agenda

    Angel Melguizo, July 2015
    A large share of the population in emerging market economies has no pension coverage, exposing them to the economic risks arising from socio-economic and individual shocks. This problem, which arises from having large informal (unregulated) sectors, affects not only poor workers, but as many as half the newly or nearly middle class in some emerging market economies. With very little social protection coverage today, these workers will also be vulnerable in the future unless tax, labor, and social policies change to encourage formalization. While formalization would require substantial resources in the short-term, it seems financially sustainable.
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  • Policies to support women’s paid work

    Policies in developing countries to improve women’s access to paid work should also consider child welfare

    Engaging in paid work is generally difficult for women in developing countries. Many women work unpaid in family businesses or on farms, are engaged in low-income self-employment activities, or work in low-paid wage employment. In some countries, vocational training or grants for starting a business have been effective policy tools for supporting women’s paid work. Mostly lacking, however, are job and business training programs that take into account how mothers’ employment affects child welfare. Access to free or subsidized public childcare can increase women’s labor force participation and improve children’s well-being.
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  • Products and policies to promote saving in developing countries

    Combine behavioral insights with good products to increase formal savings in developing countries

    Jessica Goldberg, October 2014
    Poor people in developing countries can benefit from saving to take advantage of profitable investment opportunities, to smooth consumption when income is uneven and unpredictable, and to insure against emergencies. Despite the benefits of saving, only 41% of adults in developing countries have formal bank accounts, and many who do rarely use their accounts. Improving the design and marketing of financial products has the potential to increase savings among this population.
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  • Compliance with minimum wage laws in developing countries

    Institutional, individual, firm, and local labor market characteristics are critical for understanding non-compliance with minimum wage laws

    Haroon Bhorat, August 2014
    The level of compliance with minimum wage laws often depends on factors specific to each labor market. In most developing countries, a substantial share of workers still earns less than the legal minimum. Enforcement has not kept up with growth in regulations to protect workers from low wages and poor working conditions. Several institutional structures shape enforcement, including the role of labor inspectors and approaches to compliance, and these and other variables can be analyzed to explore their effects on the level of minimum wage violations.
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  • Does minimum age of employment regulation reduce child labor?

    The global fight against child labor might be better served by focusing less on existing laws and more on implementation and enforcement

    Eric V. Edmonds, July 2014
    Regulation of the minimum age of employment is the dominant tool used to combat child labor globally. If enforced, these regulations can change the types of work in which children participate, but minimum age regulations are not a useful tool to promote education. Despite their nearly universal adoption, recent research for 59 developing countries finds little evidence that these regulations influence child time allocation in a meaningful way. Going forward, coordinating compulsory schooling laws and minimum age of employment regulations may help maximize the joint influence of these regulations on child time allocation, but these regulations should not be the focus of the global fight against child labor.
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  • Public works programs in developing countries have the potential to reduce poverty

    The success of public works programs in reducing poverty depends on their design and implementation—in practice, they do better as safety nets

    Laura Zimmermann, May 2014
    Public works programs in developing countries can reduce poverty in the long term and help low-skilled workers cope with economic shocks in the short term. But success depends on a scheme’s design and implementation. Key design factors are: properly identifying the target population; selecting the right wage; and establishing efficient implementation institutions. In practice, rationing, corruption, mismanagement, and other implementation flaws often limit the effectiveness of public works programs.
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  • Does increasing the minimum wage reduce poverty in developing countries?

    Whether raising minimum wages reduces—or increases—poverty depends on the characteristics of the labor market

    T. H. Gindling, May 2014
    Raising the minimum wage in developing countries could increase or decrease poverty, depending on labor market characteristics. Minimum wages target formal sector workers—a minority in most developing countries—many of whom do not live in poor households. Whether raising minimum wages reduces poverty depends not only on whether formal sector workers lose jobs as a result, but also on whether low-wage workers live in poor households, how widely minimum wages are enforced, how minimum wages affect informal workers, and whether social safety nets are in place.
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  • Introducing a statutory minimum wage in middle and low income countries

    Successful implementation of a statutory minimum wage depends on context, capacity, and institutional design

    Motivations for introducing a statutory minimum wage in developing countries include reducing poverty, advancing social justice, and accelerating growth. Attaining these goals depends on the national context and policy choices. Institutional capacity tends to be limited, so institutional arrangements must be adapted. Nevertheless, a statutory minimum wage could help developing countries advance their development objectives, even where enforcement capacity is weak and informality is pervasive.
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