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.

  • Equal pay legislation and the gender wage gap Updated

    Despite major efforts at equal pay legislation, gender pay inequality still exists—how can this be put right?

    Solomon W. Polachek, October 2019
    Despite equal pay legislation dating back 50 years, American women still earn 18% less than their male counterparts. In the UK, with its Equal Pay Act of 1970, and France, which legislated in 1972, the gap is 17% and 10% respectively, and in Australia it remains around 14%. Interestingly, the gender pay gap is relatively small for the young but increases as men and women grow older. Similarly, it is large when comparing married men and women, but smaller for singles. Just what can explain these wage patterns? And what can governments do to speed up wage convergence to close the gender pay gap? Clearly, the gender pay gap continues to be an important policy issue.
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  • Do firms benefit from apprenticeship investments? Updated

    Why spending on occupational skills can yield economic returns to employers

    Robert Lerman, October 2019
    Economists have long believed that firms will not pay to develop occupational skills that workers could use in other, often competing, firms. Researchers now recognize that firms that invest in apprenticeship training generally reap good returns. Evidence indicates that financial returns to firms vary. Some recoup their investment within the apprenticeship period, while others see their investment pay off only after accounting for reduced turnover, recruitment, and initial training costs. Generally, the first year of apprenticeships involves significant costs, but subsequently, the apprentice's contributions exceed his/her wages and supervisory costs. Most participating firms view apprenticeships as offering certainty that all workers have the same high level of expertise and ensuring an adequate supply of well-trained workers to cover sudden increases in demand and to fill leadership positions.
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  • Designing labor market regulations in developing countries Updated

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

    Gordon Betcherman, September 2019
    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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  • Public employment in the Middle East and North Africa

    Does a changing public sector workforce in the MENA region provide an opportunity for efficient restructuring?

    Public sector hiring has been an essential component of the social bargains that have maintained political stability in the Middle East and North Africa (MENA). As these bargains eroded, public sector workforces contracted in relative terms owing to a partial freeze on hiring and the promise of lifetime job security for incumbent workers. This had profound effects on the age composition of the workforce. The upcoming retirement of many workers provides an opportunity to restructure public sector hiring to emphasize meritocratic recruitment processes and performance-based compensation systems.
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  • Women in crime Updated

    Over the last 50 years women have been increasing their participation in the labor market and in the crime market

    Nadia Campaniello, July 2019
    In recent decades, women's participation in the labor market has increased considerably in most countries and is converging toward the participation rate of men. Though on a lesser scale, a similar movement toward gender convergence seems to be occurring in the criminal world, though many more men than women still engage in criminal activity. Technological progress and social norms have freed women from the home, increasing their participation in both the labor and the crime market. With crime no longer just men's business, it is important to investigate female criminal behavior to determine whether the policy prescriptions to reduce crime should differ for women.
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  • Measuring income inequality

    Summary measures of inequality differ from one another and give different pictures of the evolution of economic inequality over time

    Ija Trapeznikova, July 2019
    Economists use various metrics for measuring income inequality. Here, the most commonly used measures—the Lorenz curve, the Gini coefficient, decile ratios, the Palma ratio, and the Theil index—are discussed in relation to their benefits and limitations. Equally important is the choice of what to measure: pre-tax and after-tax income, consumption, and wealth are useful indicators; and different sources of income such as wages, capital gains, taxes, and benefits can be examined. Understanding the dimensions of economic inequality is a key first step toward choosing the right policies to address it.
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  • Impact of privatization on employment and earnings Updated

    Workers and policymakers may fear that privatization leads to job losses and wage cuts, but what’s the empirical evidence?

    Conventional wisdom and prevailing economic theory hold that the new owners of a privatized firm will cut jobs and wages. But this ignores the possibility that new owners will expand the firm’s scale, with potentially positive effects on employment, wages, and productivity. Evidence generally shows these forces to be offsetting, usually resulting in small employment and earnings effects and sometimes in large, positive effects on productivity and scale. Foreign ownership usually has positive effects, and the effects of domestic privatization tend to be larger in countries with a more competitive business environment.
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  • Immigrants and entrepreneurship Updated

    Business ownership is higher among immigrants, but promoting self-employment is unlikely to improve outcomes for the less skilled

    Immigrants are widely perceived to be highly entrepreneurial, contributing to economic growth and innovation, and self-employment is often viewed as a means of enhancing labor market integration and success among immigrants. Accordingly, many countries have established special visas and entry requirements to attract immigrant entrepreneurs. Research supports some of these stances, but expectations may be too high. There is no strong evidence that self-employment is an effective tool of upward economic mobility among low-skilled immigrants. More broadly prioritizing high-skilled immigrants may prove to be more successful than focusing on entrepreneurship.
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  • The labor market in the US, 2000–2018 Updated

    Recovery from the Great Recession is complete, but there are difficult unemployment and wage problems

    As the largest economy in the world, the US labor market is crucial to the economic well-being of citizens worldwide as well, of course, that of its own citizens. Since 2000 the US labor market has undergone substantial changes, both reflecting the Great Recession, but also resulting from some striking trends. Most interesting have been a remarkable drop in the labor force participation rate, reversing a nearly 50-year trend; the full recovery of unemployment from the depths of the Great Recession; and the little-known continuing growth in post-inflation average earnings.
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  • Short-time work compensation schemes and employment Updated

    Temporary government schemes can have a positive economic effect

    Pierre Cahuc, May 2019
    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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