Labor Regulations Must Account for Both Jobs and Welfare

Carmen Pagés is Chief of the Labor Markets and Social Security Unit at the Inter-American Development Bank (IDB).

Why do labor regulations matter and should they protect workers or jobs, especially in developing countries? Carmen Pagés — Chief of the Labor Markets and Social Security Unit at the Inter-American Development Bank (IDB) — tells the JKP that labor regulations matter for jobs and productivity, including which types of jobs get created (formal or informal) and in which sectors. But they also matter — and greatly — for social insurance and welfare, and thus for how inclusive growth is.

For a while now, she says, the thinking has been that it's better to protect workers and let the markets decide freely whether to create or destroy jobs. But that thinking is starting to change a bit because of the high costs of unemployment on society. What is needed, she says, is a new model for labor regulations that takes into account both jobs and welfare. As for the informal sector, she emphasizes that these workers also need social protection, perhaps via universal social insurance, which would be funded through general government revenues. She also votes for a more humble and less dogmatic approach to policy making — one that takes a trial and error approach (as doctors do), ever mindful of possible adverse side-effects.

This post was first published on the Jobs Knowledge Platform.