Development

Low-income countries differ from higher-income countries in that they have large informal sectors, greater prevalence of self-employment and subsistence agriculture, low female labor participation rates and poor labor market conditions. As labor is most often the only asset of someone in poverty, policies that are not associated with job creation may fail to reduce poverty. Contributions to this subject area deal with the potential of labor economics to address those challenges.

  • The good and the bad in remittance flows

    Remittances have the potential to lift up developing economies

    Catalina Amuedo-Dorantes, November 2014
    Remittances have risen spectacularly in recent decades, capturing the attention of researchers and policymakers and spurring debate on their pros and cons. Remittances can improve the well-being of family members left behind and boost the economies of receiving countries. They can also create a culture of dependency in the receiving country, lowering labor force participation, promoting conspicuous consumption, and slowing economic growth. A better understanding of their impacts is needed in order to formulate specific policy measures that will enable developing economies to get the greatest benefit from these monetary inflows.
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  • Designing labor market regulations in developing countries

    Labor market regulation should aim to improve the functioning of the labor market while protecting workers

    Gordon Betcherman, May 2014
    Governments regulate employment to protect workers and to improve labor market efficiency. However, employment regulations can be controversial, often complicated by opposing ideological views. Thus, it is important for policymakers in developing countries to base decisions on empirical evidence of the impacts of these regulations. The majority of the evidence suggests that most countries have set their regulations in the appropriate range. But it can be costly when countries either overregulate or underregulate their labor market.
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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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  • Adult literacy programs in developing countries

    While missing their primary objectives, adult literacy programs can still improve key socio-economic outcomes

    Niels-Hugo Blunch, July 2017
    In addition to the traditional education system targeting children and youth, one potentially important vehicle to improve literacy and numeracy skills is adult literacy programs (ALPs). In many developing countries, however, these programs do not seem to achieve these hoped for, ex ante, objectives and have therefore received less attention, if not been largely abandoned, in recent years. But, evidence shows that ALPs do affect other important socio-economic outcomes such as health, household income, and labor market participation by enhancing participants’ health knowledge and income-generating activities.
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  • Does unemployment insurance offer incentives to take jobs in the formal sector?

    Unemployment insurance can protect against income loss and create formal employment

    Mariano Bosch, October 2016
    Unemployment insurance can be an efficient tool to provide protection for workers against unemployment and foster formal job creation in developing countries. How much workers value this protection and to what extent it allows a more efficient job search are two key parameters that determine its effectiveness. However, evidence shows that important challenges remain in the introduction and expansion of unemployment insurance in developing countries. These challenges range from achieving coverage in countries with high informality, financing the scheme without further distorting the labor market, and ensuring progressive redistribution.
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  • New firms entry, labor reallocation, and institutions in transition economies

    In transition economies, better property rights protection and rule of law enforcement can boost job creation and growth

    Randolph L. Bruno, September 2015
    In the transition from central planning to a market economy in the 1990s, governments focused on privatizing or closing state enterprises, reforming labor markets, compensating laid-off workers, and fostering job creation through new private firms. After privatization, the focus shifted to creating a level playing field in the product market by protecting property rights, enforcing the rule of law, and implementing transparent start-up regulations. A fair, competitive environment with transparent rules supports long-term economic growth and employment creation through the reallocation of jobs in favor of new private firms.
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  • Social protection programs for women in developing countries

    How to design social protection programs that poor women can benefit from

    Lisa Cameron, May 2014
    Women are more likely than men to work in the informal sector and to drop out of the labor force for a time, such as after childbirth, and to be impeded by social norms from working in the formal sector. This work pattern undermines productivity, increases women’s vulnerability to income shocks, and impairs their ability to save for old age. Many developing countries have introduced social protection programs to protect poor people from social and economic risks, but despite women’s often greater need, the programs are generally less accessible to them than to men.
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  • Relative deprivation and individual well-being

    Low status and a feeling of relative deprivation are detrimental to health and happiness

    Xi Chen, April 2015
    People who are unable to maintain the same standard of living as others around them experience a sense of relative deprivation that has been shown to reduce feelings of 
well-being. Relative deprivation reflects conditions of worsening relative poverty despite striking reductions in absolute poverty. The effects of relative deprivation explain why average happiness has been stagnant over time despite sharp rises in income. Consumption taxes on status-seeking spending, along with official and traditional sanctions on excess consumption and redistributive policies may lessen the negative impact of relative deprivation on well-being.
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  • Entrepreneurship for the poor in developing countries

    Well-designed entrepreneurship programs show promise for improving earnings and livelihoods of poor workers

    Yoonyoung Cho, July 2015
    Can entrepreneurship programs be successful labor market policies for the poor? A large share of workers in developing countries are self-employed in low-paying work or engage in low-return entrepreneurial activities that keep these workers in poverty. Entrepreneurship programs provide business training and access to finance, advisory, and networking services with the aim of boosting workers’ earnings and reducing poverty. Programs vary in design, which can affect their impact on outcomes. Recent studies have identified some promising approaches that are yielding positive results, such as combining training and financial support.
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  • Microfinance and rural non-farm employment in developing countries

    Expansion of microfinance to rural areas may reduce credit constraints, helping non-farm sector growth, employment, and development

    Shyamal Chowdhury, April 2017
    The rural non-farm sector plays an important role in diversifying income for rural households in developing countries and has the potential to emerge as a major source of employment. In some cases it has outgrown the agricultural sector, in part due to the expansion of credit through microfinance institutions that are supported by governments, donor agencies, and businesses. However, future expansion of the rural non-farm sector requires increased flexibility in credit contracts, as well as decreasing the cost of credit and the delivery of complementary inputs, e.g. skills training.
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