Labor market regulation

  • Environmental regulations and labor markets

    Balancing the benefits of environmental regulations for everyone and the costs to workers and firms

    Olivier Deschenes, November 2018
    Environmental regulations such as air quality standards can lead to notable improvements in ambient air quality and to related health benefits. But they impose additional production costs on firms and may reduce productivity, earnings, and employment, especially in sectors exposed to trade and intensive in labor and energy. Growing empirical evidence suggests that the benefits are likely to outweigh the costs.
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  • The shadow economy in industrial countries

    Reducing the size of the shadow economy requires reducing its attractiveness while improving official institutions

    Dominik H. Enste, November 2018
    The shadow (underground) economy plays a major role in many countries. People evade taxes and regulations by working in the shadow economy or by employing people illegally. On the one hand, this unregulated economic activity can result in reduced tax revenue and public goods and services, lower tax morale and less tax compliance, higher control costs, and lower economic growth rates. But on the other hand, the shadow economy can be a powerful force for advancing institutional change and can boost the overall production of goods and services in the economy. The shadow economy has implications that extend beyond the economy to the political order.
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  • Defining informality vs mitigating its negative effects

    More important than defining and measuring informality is focusing on reducing its detrimental consequences

    There are more informal workers than formal workers across the globe, and yet there remains confusion as to what makes workers or firms informal and how to measure the extent of it. Informal work and informal economic activities imply large efficiency and welfare losses, in terms of low productivity, low earnings, sub-standard working conditions, and lack of social insurance coverage. Rather than quibbling over definitions and measures of informality, it is crucial for policymakers to address these correlates of informality in order to mitigate the negative efficiency and welfare effects.
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  • Effects of regulating international trade on firms and workers

    The benefits of trade regulation increase when workers are mobile

    Raymond Robertson, June 2018
    Economists have shown that international trade increases economic growth, with trade liberalization and integration having characterized the last 50 years. While trade can increase national welfare, recent estimates from both developed and developing countries show that labor market adjustment costs matter. Regulating trade, defined as adding or removing tariffs and other trade barriers, is not the best way to help lower-income workers who suffer from trade-induced losses. Policies that reduce adjustment costs may increase aggregate welfare more than regulating trade flows does.
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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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  • Why does part-time employment increase in recessions?

    Jobs can change quickly from full- to part-time status, especially during economic downturns

    Daniel Borowczyk-Martins, October 2017
    The share of workers employed part-time increases substantially in economic downturns. How should this phenomenon be interpreted? One hypothesis is that part-time jobs are more prevalent in sectors that are less sensitive to the business cycle, so that recessionary changes in the sectoral composition of employment explain the increase in part-time employment. The evidence shows, however, that this hypothesis only accounts for a small part of the story. Instead, the growth of part-time work operates mainly through reductions in working hours in existing jobs.
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  • The influence of occupational licensing and regulation

    Occupational licensing may raise wages and benefits for those licensed but also reduce access to work without clear benefits to consumers

    Morris M. Kleiner, October 2017
    Since the end of World War II, occupational licensing has been one of the fastest growing labor market institutions in the developed world. The economics literature suggests that licensing can influence wage determination, the speed at which workers find employment, pension and health benefits, and prices. Moreover, there is little evidence to show that licensing improves service quality, health, or safety in developed nations. So, why is occupational licensing is growing when there are such well-established costs to the public?
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  • Unemployment and the role of supranational policies

    EU supranational policies should be more active at promoting institutional reforms that reduce unemployment

    Juan F. Jimeno, October 2017
    Unemployment in Europe is excessively high on average, and is divergent across countries and population groups within countries. On the one hand, over the past decades, national governments have implemented incomplete institutional reforms to amend dysfunctional labor markets. On the other hand, EU supranational policies—those that transcend national boundaries and governments—have offered only limited financial support for active labor market policies, instead of promoting structural reforms aimed at improving the functioning of European labor markets. Better coordination and a wider scope of EU supranational policies is needed to fight unemployment more effectively.
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  • Competitiveness, labor market institutions, and monetary policy

    Monetary policy should respond to the exchange rate in countries where labor market institutions hinder wage adjustment

    Ester Faia, August 2017
    In the presence of rigid prices, movements in the exchange rate help to absorb external shocks and to reduce changes in net exports. However, they also affect firms’ competitiveness, marginal costs, and labor demand. In countries where labor market institutions hinder wage adjustment (for example due to high union density or more rigid collective bargaining agreements), firms are less competitive: labor demand is then more sensitive to external shocks, increasing the risk of unemployment.
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  • How does monetary policy affect labor demand and labor productivity?

    Monetary policy easing initially supports labor demand, but persistent easing may slow down necessary restructuring and productivity growth

    Andrew Benito, July 2017
    By supporting aggregate demand, including by easing financial constraints that affect businesses and house­holds, accommodative monetary policy increased employment during the 2008 financial crisis and its aftermath. But, monetary policies that ease financial pressures also reduce necessary restructuring that normally contributes to productivity growth. One reason why productivity growth has been weaker in the aftermath of the crisis is that aggressive monetary policy actions have weakened underlying supply-side performance and labor productivity.
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