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Declining union power would not be an
overwhelming cause for concern if not for rising wage inequality and the
loss of worker voice
The micro- and macroeconomic effects of the
declining power of trade unions have been hotly debated by economists and
policymakers, although the empirical evidence does little to suggest that
the impact of union decline on economic aggregates and firm performance is
an overwhelming cause for concern. That said, the association of declining
union power with rising earnings inequality and the loss of an important
source of dialogue between workers and their firms have proven more
worrisome if no less contentious. Causality issues dog the former
association and while the diminution in representative voice seems
indisputable any depiction of the non-union workplace as an authoritarian
“bleak house” is more caricature than reality.
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Long-term unemployment did not rise under the
flexicurity model during the great recession, despite the large drop in
GDP
Before the great recession of 2008–2009, the
“flexicurity” model (with flexibility for firms to adjust their labor force
along with income security for workers through the social safety net)
attracted attention for its ability to deliver low unemployment. But how did
it fare during the recession, especially in Denmark, which has been
highlighted as having a well-functioning flexicurity model? Flexible hiring
and firing rules are expected to lead to large adjustments in employment in
a recession. Did the high rate of job turnover continue or did long-term
unemployment rise? And did the social safety net become overburdened?
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The China Shock has challenged economists’
benign view of how trade integration affects labor markets in developed
countries
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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Monetary policy easing initially supports labor
demand, but persistent easing may slow down necessary restructuring and
productivity growth
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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Labor market regulation should aim to improve the
functioning of the labor market while protecting workers
Governments regulate employment to protect
workers and improve labor market efficiency. But, regulations, such as
minimum wages and job security rules, can be controversial. Thus, decisions
on setting employment regulations should be based on empirical evidence of
their likely impacts. Research suggests that most countries set regulations
in the appropriate range. But this is not always the case and it can be
costly when countries over- or underregulate their labor markets. In
developing countries, effective regulation also depends on enforcement and
education policies that will increase compliance.
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Jobs can change quickly from full- to part-time
status, especially during economic downturns
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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Temporary government schemes can have a
positive economic effect
Government schemes that compensate workers for
the loss of income while they are on short hours (known as short-time work
compensation schemes) make it easier for employers to temporarily reduce
hours worked so that labor is better matched to output requirements. Because
the employers do not lay off these staff, the schemes help to maintain
permanent employment levels during recessions. However, they can create
inefficiency in the labor market, and might limit labor market access for
freelancers and those looking to work part-time.
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