Occupational licensing may raise wages and benefits for those licensed but also reduce access to work without clear benefits to consumers
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?
EU supranational policies should be more active at promoting institutional reforms that reduce unemployment
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.
Monetary policy should respond to the exchange
rate in countries where labor market institutions hinder wage adjustment
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
Monetary policy easing initially supports labor
demand, but persistent easing may slow down necessary restructuring and
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.
Understanding how employment tribunals make
decisions can guide reforms of employment dispute settlement
Employment tribunals or labor courts are
responsible for enforcing employment protection legislation and adjudicating
rights-based disputes between employers and employees. Claim numbers are
high and, in Great Britain, have been rising, affecting both administrative
costs and economic competitiveness. Reforms have attempted to reduce the
number of claims and to improve the speed and efficiency of dealing with
them. Balancing employee protection against cost-effectiveness remains
difficult, however. Gathering evidence on tribunals, including on claim
instigation, resolution, decision making, and post-tribunal outcomes can
inform policy efforts.
Employer provision of sickness/disability benefits reduces
take-up but may also have unintended effects
Public schemes for sickness benefits and disability insurance
are often criticized for the lack of incentive they provide for preventive and reintegration
activities by employers. To stimulate the interest of employers in engaging with these
schemes, several modes of privatization could be considered, including the provision of
sickness benefits by employers, “experience rating” of disability insurance costs, employer
self-insurance, or insurance by private insurance providers. These types of employer
incentives seem to lower sickness rates, but they also come at the risk of increased
under-reporting and less employment opportunities for workers with disabilities or bad health
conditions. Policymakers should be aware of this trade-off.
Penalties may last ten years or more, especially
for high-educated youth and in rigid labor markets
The Great Recession that began in 2008–2009
dramatically increased youth unemployment. But did it have long-lasting,
adverse effects on the careers of youths? Are cohorts that graduate during a
recession doomed to fall permanently behind those that graduate at other
times? Are the impacts different for low- and high-educated individuals? If
recessions impose penalties that persist over time, then more government
outlays are justified to stabilize economic activity. Scientific evidence
from a variety of countries shows that rigid labor markets can reinforce the
persistence of these setbacks, which has important policy implications.
Are low-paid jobs stepping stones to higher paid
jobs, do they become persistent, or do they lead to recurring
Low-wage employment has become an important
feature of the labor market and a controversial topic for debate in many
countries. How to interpret the prominence of low-paid jobs and whether they
are beneficial to workers or society is currently an open question. The
answer depends on whether low-paid jobs are largely transitory and serve as
stepping stones to higher-paid employment, whether they become persistent,
or whether they result in repeated unemployment. The empirical evidence is
mixed, pointing to both stepping-stone effects and “scarring” effects (i.e.
long-lasting detrimental effects) of low-paid work.
The evidence is mixed on whether and how
economic reforms benefit informal labor
The evidence is mixed on whether informal labor
in developing countries benefits from trade and labor market reforms.
Reforms lead to higher wages and improved employment conditions in the
informal sector in some cases, and to the opposite effect in others. At a
cross-country level, lifting trade protection boosts informal-sector
employment. The direction and size of the impacts on informal-sector
employment and wages are determined by capital mobility and the interactions
between trade and labor market reforms and public policies, such as
monitoring the formal sector. To guarantee best practice policymakers need
to take these interdependencies into account.
Do regulation-induced environmental innovations affect
New environmental technologies
(environmental/eco-innovations) are often regarded as potential job creators—in addition
to their positive effects on the environment. Environmental regulation may induce
innovations that are accompanied by positive growth and employment effects. Recent
empirical analyses show that the introduction of cleaner process innovations, rather
than product-based ones, may also lead to higher employment. The rationale is that
cleaner technologies lead to cost savings, which help to improve the competitiveness of
firms, thereby inducing positive effects on demand.