What can labor ministers in the developing world learn from the heated debate on minimum wages that Seattle’s dramatic reforms reignited? The answer may be confusion. After more than 6,000 scientific articles, the discussion on the costs and benefits of raising minimum wages is still one of those unresolved million-dollar questions: Many economists claim that it is a very effective way to guarantee decent jobs for workers and to reduce inequality, but other economists and policymakers seem convinced that it would do just the opposite. The recent experiment in Seattle, unfortunately, adds little clarity.
Law and Regulation
"Writing laws is easy, but governing is difficult," wrote Leo Tolstoy in War and Peace. We agree.
Our recently finished study highlights how differences in the enforcement of a strict labor code across Russia’s numerous administrative regions has affected hiring and firing decisions. More specifically, we examine how the varying capacity to enforce the labor code affected labor adjustment by firms in response to industry-wide surges and slumps.
Janine Berg, guest blogger, is a Senior Economist at the International Labour Organization (ILO)
Efforts to extend social security to workers in non-standard employment and to build a social protection floor are critical for reducing poverty and part of the challenge of addressing informal employment.
Total factor productivity (TFP) is considered a measure of the current level of technology. Hugo Hopenhayn (Professor of Economics, UCLA) explains how recent studies show the relationship between country-level TFP disparities and the big income gaps between them. According to Hopenhayn, low TFP can be explained by borrowing constraints and high costs of doing business.
In my previous post I showed that Poland has become a country with the highest share of temporary contracts in Europe – now around 26.9% of workers. I argued that this process wasn’t triggered by interactions between several labor regulations. In particular, the use of civil law contracts (as opposed to those based on the labor code) has become increasingly common, resulting in a dual labor market, in which one segment of the work force is better off (in terms of wages, income, and training) than the other. The Polish government has labeled these contracts “junk contracts” but so far it has failed to truly address the issue. What can be done to overcome the current deadlock on this issue?
The political and economic transition of post-communist Central and Eastern European (CEE) countries brought substantial improvements in GDP per capita, productivity, incomes and standard of living. But certain worrying phenomena emerged on the labour markets. One of these was a rise in temporary employment, which has created a “dual labor market” – that is, a segmented market with workers in one segment more privileged than those in the other. For the CEE economies – especially Poland – the onset was in the 2000s. A variety of possible solutions exist, but so far the Polish government has done little to improve the situation.
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.
As governments debate labor market regulations — a highly controversial topic, sometimes for ideological reasons — it is vital to base decisions on empirical evidence. Thus, a welcome addition to the debate is the work of Gordon Betcherman — a Professor in the School of International Development and Global Studies, University of Ottawa — who contends that the key challenge for policy makers is to avoid the extremes of over- and under-regulation.
Labor regulations are important to protect workers and create good jobs, though many critics contend that such policies undercut job creation. The best ways design and implement them may remain a source of debate, but research in the World Bank's 2013 World Development Report on Jobs shows that these regulations don't have much impact on employment, and can even prevent worker abuse and inadequate working conditions.