The effect of overtime, payroll taxes, and labor
policies and costs on companies’ product output and countries’ GDP
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. Overtime pay, hiring
subsidies, the minimum wage, and payroll taxes 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 the overall economy.
Despite major efforts at equal pay legislation,
gender pay inequality still exists in the developed economies. How can this
be put right?
Despite equal pay legislation dating back 50
years, American women still earn 22% less than their male counterparts. In
the UK, with its Equal Pay Act of 1970, and France, which legislated in
1972, the gap is 21% and 17% respectively, and in Australia it remains
around 17%. 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.
The institutional structure of pension systems
should follow population developments
For decades, pension systems were based on the
rising revenue generated by an expanding population (demographic dividend).
As changes in fertility and longevity created new population structures,
however, the dividend disappeared, but pension systems failed to adapt. They
are kept solvent by increasing redistributions from the shrinking
working-age population to retirees. A simple and transparent structure and
individualization of pension system participation are the key preconditions
for an intergenerationally just old-age security system.
Successful implementation of a statutory minimum
wage depends on context, capacity, and institutional design
Motivations for introducing a statutory minimum
wage in developing countries include reducing poverty, advancing social
justice, and accelerating growth. Attaining these goals depends on the
national context and policy choices. Institutional capacity tends to be
limited, so institutional arrangements must be adapted. Nevertheless, a
statutory minimum wage could help developing countries advance their
development objectives, even where enforcement capacity is weak and
informality is pervasive.
Labor market regulation should aim to improve the
functioning of the labor market while protecting workers
Governments regulate employment to protect
workers and to improve labor market efficiency. However, employment
regulations can be controversial, often complicated by opposing ideological
views. Thus, it is important for policymakers in developing countries to
base decisions on empirical evidence of the impacts of these regulations.
The majority of the evidence suggests that most countries have set their
regulations in the appropriate range. But it can be costly when countries
either overregulate or underregulate their labor market.
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. Nevertheless, the empirical evidence shows that the impact of
the decline on economic aggregates and firm performance is not an
overwhelming cause for concern. However, the association of declining union
power with rising earnings inequality and a loss of direct communication
between workers and firms is potentially more worrisome. This in turn raises
the questions of how supportive contemporary unionism is of wage solidarity,
and whether the depiction of the nonunion workplace as an authoritarian
“bleak house” is more caricature than reality.
What are the economic implications of union wage
bargaining for workers, firms, and society?
Despite declining bargaining power, unions
continue to generate a wage premium. Some feel collective bargaining has had
its day. Politicians on both sides of the Atlantic have recently called for
the removal of bargaining rights from workers in the name of wage and
employment flexibility, yet unions often work in tandem with employers for
mutual gain based on productivity growth. If this is where the premium
originates, then firms and workers benefit. Without unions bargaining
successfully to raise worker wages, income inequality would almost certainly
be higher than it is.
There is no evidence that being strict with
overtime hours and pay boosts 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.