What we’ve been reading: How post-pandemic labor policy reforms are key to creating more, better jobs

This reading list is based on the May 2021 edition of the Knowledge4Jobs newsletter, curated by the World Bank’s Jobs Group and Labor & Skills Global Solutions Group. Click here to sign up for the Knowledge4Jobs newsletter.

Winston Churchill once said that one should never let a good crisis go to waste. Given the multi-faceted, repercussive nature of the COVID-19 pandemic, policy responses have understandably focused on mitigating the short-run health and employment crises. With the exception of initiatives to spur digital technology or green energy, few countries have pivoted to a consideration of the trickier economic reforms that may be needed to rebound faster and achieve "better jobs for more people" after the crisis.

It is not too early to begin this consideration. A balance is always needed between protecting workers, retaining valuable job-worker matches ("matching capital" and job-specific human capital), and fostering dynamism and opportunities for workers seeking better jobs. That balance requires reassessment in the midst of an employment crisis, when emergency policies (including temporary relaxation of some rules) may be needed to limit job loss. But in many countries, even before the pandemic, structural reforms were also needed to optimize labor market policies to accelerate the growth of better, formal jobs and the drive towards universal social protection . So, the waning of the crisis may be a good time to develop carefully tailored and sequenced reform programs. 

For those reasons, this month’s Newsletter is focused on approaches to structural labor policy reforms in the aftermath of the jobs nadir. The available literature offers some guidance and highlights the important and complex interactions between countries' financial capacity, fiscal space, product market structures, economic informality, labor policies, digital capabilities, openness to trade, and other factors. 

Reforms to Boost Jobs Post-Pandemic

This op-ed argues that the pandemic has created new opportunities to correct the long-standing structural weaknesses in Latin America's state capacity and the dualistic labor market. (Cardenas et al., Brookings, November 2020)

Economists calibrate a theoretical model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. (Dix-Carneiro et al., National Bureau of Economic Research, January 2021)

Post-pandemic reforms in Sub-Saharan Africa can boost per capita growth by an additional 0.3 to 1.3 percentage points. (Ganum & Thakoor, International Monetary Fund, February 2021)

Essential Readings

Findings suggest that the simultaneous implementation of labor and product market reforms can improve growth dynamics in the short run. (Berti & Meyermans, IDEAS, October 2017)

This critical review of the literature on the design of structural reforms in times of crisis helps identify key issues and lessons for successful structural reform design, implementation, and sustainability. (Dimitris Katsikas, Economic Crisis and Structural Reforms in Southern Europe, December 2017)

Exploring the economic, political, and institutional factors that differentially affect the success of Southern European reform programs. (Manasse & Katsikas, VoxEU & CEPR, February 2018)

An increase in labor market flexibility allows more employment adjustment — where firms exposed to China's hukou reforms had higher employment adjustment rates than comparable firms not exposed to the reform. (Wang et al., Journal of Development Economics, March 2021)

A large minimum wage increase would significantly increase the destruction rate of small and low productivity formal firms. (Bossavie et al., World Bank, February 2019)

Workers and, to a lesser extent, large firms are the main losers from labor regulation, while small businesses are the main winners. (Garicano et al., American Economic Review, November 2016)

During emergencies, policy responses should facilitate the prompt reallocation of employment to essential activities but maintain workers' attachment to previous employers. (Fujita et al., VoxEU & CEPR, March 2020)    

For pandemic recovery, governments should provide unemployment benefits to workers, offer wage subsidies and partially guaranteed loans to firms, and create debt restructuring procedures for SMEs with excessive debts. (Blanchard et al., Peterson Institute for International Economics, June 2020)

Broader Jobs Agenda

This paper proposes a method for measuring monopsony power and shows that market power substantially lowers labor's share of income by up to 11 percentage points in China and 15 percentage points in India. (Brooks et al., Journal of Development Economics, May 2021)

Findings suggest that positive linkages between technology adoption and salaried-firm entry costs are crucial for rationalizing the empirical relationships between a firm's digital adoption and self-employment. (Shapiro & Mandelman, Journal of Development Economics, June 2021)

Three main challenges to improving technology adoption in Senegal: 1) access to finance, 2) firm capabilities, and 3) access to markets and competition. (Cirera et al., World Bank, May 2021)

COVID-19 Related Articles

Reviewing the potential scope for and design of temporary "COVID-19 recovery contributions" levied on high earners to help meet the extraordinary financing needs caused by the pandemic. (Gaspar et al., International Monetary Fund, April 2021)

Country measures: 3,333 measures that have been planned or implemented in 222 countries or territories since the onset of the pandemic.  (Gentilini et al., World Bank,
May 2021)

The authors develop a dynamic model based on a choice selection in which individuals choose between higher pay from commuting to work and a higher risk of infection. (Chang et al., National Bureau of Economic Research, April 2021)