Labor markets and institutions

Institutions have important consequences for the performance of households, companies, governments, and entire markets—they determine the welfare of nations. Contributions to this subject area explore the underlying mechanisms and the politico-economic determinants of such structures. Many provide background analyses that offer evidence on how new institutions and policies would affect labor markets.

  • Do labor costs affect companies’ demand for labor? Updated

    Overtime penalties, payroll taxes, and other labor policies alter costs and change employment and output

    Daniel S. Hamermesh, February 2021
    Higher labor costs (higher wage rates and employee benefits) make workers better off, but they can reduce companies’ profits, the number of jobs, and the hours each person works. The minimum wage, overtime pay, payroll taxes, and hiring subsidies are just a few of the policies that affect labor costs. Policies that increase labor costs can substantially affect both employment and hours, in individual companies as well as in the overall economy.
  • Statistical profiling of unemployed jobseekers

    The increasing availability of big data allows for the profiling of unemployed jobseekers via statistical models

    Statistical models can help public employment services to identify factors associated with long-term unemployment and to identify at-risk groups. Such profiling models will likely become more prominent as increasing availability of big data combined with new machine learning techniques improve their predictive power. However, to achieve the best results, a continuous dialogue between data analysts, policymakers, and case workers is key. Indeed, when developing and implementing such tools, normative decisions are required. Profiling practices can misclassify many individuals, and they can reinforce but also prevent existing patterns of discrimination.
  • The effect of overtime regulations on employment Updated

    Strictly controlling overtime hours and pay does not boost employment—it could even lower it

    Regulation of standard workweek hours and overtime hours and pay can protect workers who might otherwise be required to work more than they would like to at the going rate. By discouraging the use of overtime, such regulation can increase the standard hourly wage of some workers and encourage work sharing that increases employment, with particular advantages for female workers. However, regulation of overtime raises employment costs, setting in motion economic forces that can limit, neutralize, or even reduce employment. And increasing the coverage of overtime pay regulations has little effect on the share of workers who work overtime or on weekly overtime hours per worker.
  • Impacts of regulation on eco-innovation and job creation Updated

    Do regulation-induced environmental innovations affect employment?

    Jens Horbach, November 2020
    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 helps to improve firms’ competitiveness, thereby inducing positive effects on their market shares.
  • Public sector outsourcing Updated

    The desirability of outsourcing the provision of public services depends on their characteristics and market conditions

    The decision to outsource public provision of services is multifaceted and context dependent. Doing so tends to lower labor intensity and increase its efficiency. Costs are usually lower, but quality problems can affect services like health care, though consumer choice has stimulated innovation and quality in both education and health care. Natural monopolies are less suitable for outsourcing, while network services (public transportation) may be outsourced through public tenders. Though some jobs may be lost in the short term, the long-term effects are generally positive for a wide variety of activities.
  • Racial wage differentials in developed countries Updated

    The variation of racial wage gaps across and within groups requires differing policy solutions

    Simonetta Longhi, October 2020
    In many developed countries, racial and ethnic minorities are paid, on average, less than the native white majority. While racial wage differentials are partly the result of immigration, they also persist for racial minorities of second and further generations. Eliminating racial wage differentials and promoting equal opportunities among citizens with different racial backgrounds is an important social policy goal. Inequalities resulting from differences in opportunities lead to a waste of talent for those who cannot reach their potential and to a waste of resources if some people cannot contribute fully to society.
  • Labor market performance and the rise of populism

    Automation, globalization, and crisis-driven spikes in unemployment have contributed to rising populism in advanced economies

    Sergei Guriev, July 2020
    The recent rise of populism in advanced economies reveals major voter discontent. To effectively respond to voters’ grievances, researchers and policymakers need to understand their drivers. Recent empirical research shows that these drivers include both long-term trends (job polarization due to automation and globalization) and the rise in unemployment due to the recent global financial crisis. These factors have undermined public trust in the political establishment and have contributed to increased governmental representation for anti-establishment parties.
  • The labor market in Norway, 2000–2018 Updated

    Negative consequences of falling oil prices were offset by real wage flexibility, reduced immigration, and labor reallocation

    Øivind A. Nilsen, June 2020
    Norway has a rather high labor force participation rate and a very low unemployment rate. Part of the reason for this fortunate situation is the so-called “tripartism”: a broad agreement among unions, employers, and government to maintain a high level of coordination in wage bargaining. This has led to downward real wage flexibility, which has lessened the effects of negative shocks to the economy. Reduced net immigration, especially from neighboring countries, also mitigated the negative effects of the oil price drop in 2014. A potential drawback of tripartism is the difficulty of reducing employee absences and disability.
  • The labor market in Switzerland, 2000–2018 Updated

    The Swiss labor market has proven resilient to several recent shocks, with unemployment remaining stable and real wages steadily increasing

    Switzerland is a small country with rich cultural and geographic diversity. The Swiss unemployment rate is low, at around 4%. The rate has remained at that level since the year 2000, despite a massive increase in the foreign labor force, the Great Recession, and a currency appreciation shock, demonstrating the Swiss labor market's impressive resiliency. However, challenges do exist, particularly related to earnings and employment gaps between foreign and native workers, as well as a narrowing but persistent gender pay gap. Additionally, regional differences in unemployment are significant.
  • The labor market in Finland, 2000–2018 Updated

    The economy has finally started to recover from an almost decade-long economic stagnation

    Finland's population is aging rapidly by international comparison. The shrinking working-age population means that the burden of increasing pension and health care expenditures is placed on a smaller group of employed workers, while the scope for economic growth through increased labor input diminishes. Fiscal sustainability of the welfare state calls for a high employment rate among people of working age. Recent increases in employment contribute favorably to public finances, but high overall unemployment and a large share of the long-term unemployed are serious concerns.
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