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.

  • The consequences of trade union power erosion Updated

    Declining union power would not be an overwhelming cause for concern if not for rising wage inequality and the loss of worker voice

    John T. Addison, February 2020
    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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  • Do institutions matter for entrepreneurial development?

    In post-Soviet countries, well-functioning institutions are needed to foster productive entrepreneurial development and growth

    Ruta Aidis, February 2017
    Supportive institutional environments help build the foundations for innovative and productive entrepreneurship. A few post-Soviet countries have benefitted from international integration through EU membership, which enabled the development of democracy and free market principles. However, many post-Soviet economies continue to face high levels of corruption, complex business regulations, weak rule of law and uncertain property rights. For them, international integration can provide the needed support to push through unpopular yet necessary stages of the reform process.
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  • Tax evasion, market adjustments, and income distribution Updated

    Market adjustments to tax evasion alter factor and product prices, which determine the true impacts and beneficiaries of tax evasion

    James AlmMatthias Kasper, February 2020
    How does tax evasion affect the distribution of income? In the standard analysis of tax evasion, all the benefits are assumed to accrue to tax evaders. However, tax evasion has other impacts that determine its true effects. As factors of production move from tax-compliant to tax-evading (informal) sectors, these market adjustments generate changes in relative prices of products and factors, thereby affecting what consumers pay and what workers earn. As a result, at least some of the gains from evasion are shifted to consumers of goods produced by tax evaders, and at least some of the returns to tax evaders are competed away via lower wages.
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  • Tuning unemployment insurance to the business cycle

    Unemployment insurance generosity should be greater when unemployment is high—and vice versa

    Torben M. Andersen, May 2014
    High unemployment and its social and economic consequences have lent urgency to the question of how to improve unemployment insurance in bad times without jeopardizing incentives to work or public finances in the medium term. A possible solution is a rule-based system that improves the generosity of unemployment insurance (replacement rate, benefit duration, eligibility conditions) when unemployment is high and reduces the generosity when it is low.
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  • A flexicurity labor market during recession

    Long-term unemployment did not rise under the flexicurity model during the great recession, despite the large drop in GDP

    Torben M. Andersen, July 2015
    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 Danish labor market, 2000–2018 Updated

    Employment has increased since the recession due to a cyclical upturn and structural reforms

    Torben M. Andersen, December 2019
    Denmark is often highlighted as a “flexicurity” country characterized by lax employment protection legislation, generous unemployment insurance, and active labor market policies. Despite a sharp and prolonged decline in employment in the wake of the Great Recession, high job turnover and wage adjustments worked to prevent increased long-term and structural unemployment. Most unemployment spells were short, muting the effects on long-term and youth unemployment. Recent reforms boosted labor supply and employment, targeting the young, elderly, and immigrants. Employment recovered to its structural level around 2015 and has since increased due to a favorable business cycle situation and structural reforms (particularly increases in retirement age).
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  • The changing of the French labor market, 2000–2017

    The French workforce is now much better educated, but unemployment, underemployment, and low-income work present challenges

    Philippe Askenazy, January 2018
    France has the second largest population in the EU. Since 2000, the French labor market has undergone substantial changes resulting from striking trends, some of which were catalyzed by the Great Recession. The most interesting of these have been the massive improvement in the education of the labor force (especially of women), the resilience of employment during the Great Recession (albeit with a very late recovery), and the dramatic emergence of very short-term employment contracts and low-income independent contractors, which together fueled earnings inequality.
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