Effects Of Labor Market Institutions Research Articles

Labour Market Regulation and Business Entry

Regulation of labour markets is often viewed as being hostile to entrepreneurship. Several studies investigate the effects of labour market institutions on entrepreneurship in terms of self-employment but there is a relatively small number of international studies relating labour market institutions to business creation. This paper empirically investigates the impact of labour market institutions (the bargaining power of trade unions, unemployment benefits and labour income taxation) on business entry in chosen OECD countries over the period 1995-2007. To take into account a specific structure of time-series cross-section data, the regression equation that explains business entry is estimated by two alternative approaches: the feasible generalized least squares approach proposed by Parks (1967) and the panel corrected standard errors approach proposed by Beck and Katz (1995). The regression analysis gives mixed results about the impact of union bargaining power, unemployment benefits and labour income taxation on business entry. The business entry rate is negatively associated with obstacles to getting a credit and the size of country’s population, but positively associated with trade openness.

How Labour Market Regulation Shapes Bank Performance in Eu-15 Countries?

The European banking industry is undergoing significant structural changes and cost-cutting programs, also as a result of the financial crisis. Yet, the institutional features that affect banks’ ability to adjust costs and in particular personnel expenses, which comprise a significant part of banks’ non-interest cost structure, have not been adequately studied. This paper investigates the effect of labour market institutions and regulations on bank performance in EU-15 countries. Results indicate the existence of a negative relationship between bank performance and the liberalization of EU labour markets. However, when looking at the disaggregated components of the labour index, we find evidence that different forces are at play and that the liberalization of the minimum wage, hiring and firing regulations and the cost of dismissals could assert a positive effect on efficiency.

Labour market institutions and unemployment: an international panel data analysis

This paper deals with the effects of labour market institutions on unemployment in a panel of 19 OECD countries for the period 1960–2000. In contrast to many other studies, we use long time series and analyse cyclically adjusted trend values of the unemployment rate. Our novel contribution is the estimation of panel models where we allow for heterogeneous effects of institutions on unemployment. Our main results are, first, that on the average tighter employment protection, a higher tax burden on labour income and a more generous unemployment insurance system increase, whereas a higher centralization of wage negotiations decreases unemployment, and secondly, that the magnitude of the effects of institutions differs considerably between countries.

SOCIAL AND ECONOMIC CONSEQUENCES OF ENTERPRISE BARGAINING: DISCUSSANT'S COMMENTS

The perennial $64m question of Australian Labour Economics: How to identify the effect of institutions on labour market outcomes? The complexity of the Australian industrial relations system, the lack of data allowing workers to be matched to the institutional arrangements under which they are working, and the difficulty of distinguishing the effects of institutions from other determinants of labour market outcomes - All these factors have contributed to there being a relatively limited empirical literature in Australia compared to other countries on topics such as the effects of labour market institutions on wages, employment or productivity.

Labor market institutions, firm-specific skills, and trade patterns

This paper studies how a country's labor market institutions, by affecting workers' skill acquisition, can shape its export patterns. I develop an open-economy model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. In the model, labor market protection raises workers' incentives to acquire firm-specific skills relative to general skills, turning labor laws into a source of comparative advantage. In particular, the model shows that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors at both the intensive and extensive margins. To test the theoretical predictions, I construct sector proxies for the firm-specific and industry-specific skill intensity by estimating returns to firm tenure and industry tenure for different U.S. manufacturing sectors during the 1974–1993 period. By estimating sector-level gravity equations for 84 countries using the Helpman–Melitz–Rubinstein (2008) framework, I find evidence supporting the predicted effects of labor market institutions at both margins of exports.

Who benefits from labor market institutions? Evidence from surveys of life satisfaction

This paper investigates the welfare effects of labor market institutions, placing an emphasis on how the institutions’ effects are differentiated by socio-demographic subgroups. We study how life satisfaction is affected by employment protection and the level and duration of unemployment benefit payments. Using data for almost 370,000 individuals in ten European countries, 1975–2002, we find that more employment protection and a higher benefit replacement rate increase the life satisfaction of the average citizen. At the subgroup level, different segments of the population are affected differently by the two categories of labor market institutions. While employment protection is valued especially by employed persons of intermediate age, it is less beneficial for women/housewives and for older persons. More generous unemployment insurance is valued especially by these latter subgroups and by the unemployed.

Labor Market Institutions, Firm-Specific Skills and Trade Patterns

This paper studies how cross-country differences in labor market institutions shape the pattern of international trade, focusing on workers’ skill acquisition. I develop a model in which workers undertake non-contractible activities to acquire firm specific skills on the job. In the model, workers have more incentive to acquire firm specific skills relative to general skills in a more protective labor market. When sectors are different in the dependence on these two types of skills, workers’ skill acquisition turns labor laws into a source of comparative advantage. By embedding the model in an open-economy framework with heterogeneous firms, sectors with different levels of dependence on firm specific skills, and countries with varying degrees of labor protection, I show that countries with more protective labor laws export relatively more in firm specific skill-intensive sectors through both the intensive and extensive margins of trade. I then estimate returns to firm tenure for different U.S. manufacturing sectors over the period of 1974-1993, and use the estimates as sector proxies for firm-specific skill intensity to test the theoretical predictions. By implementing the Helpman-Melitz-Rubinstein (2008) framework to estimate sector-level gravity equations for 84 countries in 1995, I find supporting evidence for the predicted effects of labor market institutions on both margins of trade.

Labor Markets and Labor Market Institutions in Transition Economies

This paper summarizes the evolution of labor markets and labor market institutions and policies in the countries of Central and Eastern Europe as well as of Central Asia over the last two decades. The main focus is on the evolution of labor market institutions, which are among candidate explanations for the very diverse trajectories of labor markets in the region. We consider recent contributions that attempt to assess the effect of labor market institutions on labor market performance of TEs, including the policy-relevant issue of complementarity of institutions.

Labour Market Institutions and Unemployment- An International Comparison

This paper deals with the effects of labour market institutions on unemployment in a panel of 19 OECD countries for the period 1960 to 2000. In c ontrast to many other studies, we use long time series and analyze cyclically adjusted tr end values of the unemployment rate. Our novel contribution is the estimation of panel model s where we allow for heterogeneous effects of institutions on unemployment. Our main results a re that on the average a tighter employment protection, a higher tax burden on labour income and a more generous unemployment insurance system increase, whereas a higher centralization of wage negotiations decreases unemployment. The strength of the effects differs considerably between countries.

Labour Market Institutions and Technological Employment

Our paper seeks to gain insights into the effect of labour market institutions on the dynamics of the labour market during the diffusion process of new technologies. We develop an endogenous job destruction matching framework, with heterogeneous workers, where the segmentation of the labour market between workers having the required ability to do a technological job and the rest of the workers is endogenous. The dynamics of this segmentation may follow a monotonous decreasing path or a non‐monotonous U‐shaped path depending on the unemployment benefit system. If benefits are generous, we are in the U‐shaped case.

Changes in the Wage Structure in EU Countries

We study changes in the wage structures in nine EU countries over 1995-2002 and the role of demand, supply and institutional developments in shaping these changes. Using comparable cross-country microeconomic data, we compute for each country and at each decile of the wage distribution, the part of the observed wage change that is due to changes in the composition of workers, employers, and jobs’ characteristics, and the part due to changes in the returns to these characteristics. We find that composition effects derived from changes in age, gender or education of the labour force, largely exogenous to economic developments, had a minor contribution to the observed wage dynamics. In contrast, return and composition effects from characteristics likely driven by economic developments are found most relevant to explain the observed changes. We relate wages and their various components with macroeconomic and institutional trends and find that technology and globalisation are associated with wage increases; migration is associated with declines in wages; whereas the effect of labour market institutions has been mixed.

Macroeconomic volatilities and the labor market: First results from the euro experiment

We analyze the effects of labor market institutions (LMIs) on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences. We use a New Keynesian model with unemployment to predict the effects of LMIs. In our empirical estimations, we find that higher labor turnover costs have a significant negative effect on output volatility, while replacement rates have a positive effect, both in line with theory. While LMIs have a large effect on output volatility, they do not matter much for inflation volatility.

Changes in the Wage Structure in EU Countries

We study changes in the wage structures in nine EU countries over 1995-2002 and the role of demand, supply and institutional developments in shaping these changes. Using comparable cross-country microeconomic data, we compute for each country and at each decile of the wage distribution, the part of the observed wage change that is due to changes in the composition of workers, employers, and jobs’ characteristics, and the part due to changes in the returns to these characteristics. We find that composition effects derived from changes in age, gender or education of the labour force, largely exogenous to economic developments, had a minor contribution to the observed wage dynamics. In contrast, return and composition effects from characteristics likely driven by economic developments are found most relevant to explain the observed changes. We relate wages and their various components with macroeconomic and institutional trends and find that technology and globalisation are associated with wage increases; migration is associated with declines in wages; whereas the effect of labour market institutions has been mixed. JEL Classification: J31

Do Unions Matter? Trade Reform and Manufacturing Wages in South Africa

The effect of nominal tariff cuts on industry wage differentials has been the subject of a number of recent empirical studies. In this paper we investigate the latter relationship with respect to the South African trade reform experience using micro-level labour data for the period from 1995 to 2004. Our study extends on the existing literature in two respects: first, we are the first controlling for the potential effect of labour market institutions, such as collective bargaining power, in assessing the relationship between tariffs and industry wages. Second, we account for general equilibrium effects by controlling for the impact of changes in effective tariff rates. On the one hand, we find that only wages in industries with levels of unionisation beyond a certain threshold were adversely affected by tariff cuts. This negative effect is exacerbated by the extent of sectoral union power. The reported large magnitudes of the tariff impact on wages is in line with the considerably high mark-ups documented for South Africa. On the other hand we find some evidence suggesting that wages in industries with union power below the threshold were positively affected by the tariff cuts. This evidence suggests the omitted variable bias resulting from not controlling for industry heterogeneities in bargaining power when examining the wage–trade relationship.

Labour Market Institutions and the Employment Intensity of Output Growth

Summary This paper deals with the effects of labour market institutions on labour market performance. We analyse as an indicator for the labour intensity of output growth the employment threshold (the minimum growth rate of output necessary to keep employment constant). We show for a sample of 17 OECD countries for the period 1971 to 2002 that the strictness of employment protection raises the employment threshold in all econometric specifications. A higher wage bargaining co-ordination and a higher tax wedge reduce also the labour intensity of production, although the effects are not in all econometric specifications significant

Comparing the Effect of Labor Market Institutions on the Employment Dynamics during the Technological Diffusion Process

Our paper seeks to gain insights into the effects of labor-market institutions on the dynamics of the labor market, during the diffusion process of new technologies. Because these institutions differ between Europe and the United States, we expect the dynamics of the labor market to also diverge between both areas. We propose an endogenous job-destruction matching framework, with heterogeneous workers, where the segmentation of the labor market between workers having the required ability to do a technological job and the rest of the workers is endogenous. We show that the dynamics of this segmentation depends on the generosity of the unemployment-benefit system. When the system is generous, we obtain a U-shaped path of the labor-market segmentation, implying that workers that previously had access to technological positions may be excluded from them at a given moment of time. The presence of firing costs tends to improve job stability, but its final effect on the market tightness and unemployment rates is minor.*

Inference on Counterfactual Distributions

In this paper we develop procedures for performing inference in regression models about how potential policy interventions affect the entire marginal distribution of an outcome of interest. These policy interventions consist of either changes in the distribution of covariates related to the outcome holding the conditional distribution of the outcome given covariates fixed, or changes in the conditional distribution of the outcome given covariates holding the marginal distribution of the covariates fixed. Under either of these assumptions, we obtain uniformly consistent estimates and functional central limit theorems for the counterfactual and status quo marginal distributions of the outcome as well as other function-valued effects of the policy, including, for example, the effects of the policy on the marginal distribution function, quantile function, and other related functionals. We construct simultaneous confidence sets for these functions; these sets take into account the sampling variation in the estimation of the relationship between the outcome and covariates. Our procedures rely on, and our theory covers, all main regression approaches for modeling and estimating conditional distributions, focusing especially on classical, quantile, duration, and distribution regressions. Our procedures are general and accommodate both simple unitary changes in the values of a given covariate as well as changes in the distribution of the covariates or the conditional distribution of the outcome given covariates of general form. We apply the procedures to examine the effects of labor market institutions on the U.S. wage distribution.

The Effect of Labor Market Institutions on Salaried and Self-Employed Less-Educated Men in the 1980S

Less-educated workers exhibited negative real wage growth from the late 1970s to the early 1990s. Frequently cited to explain this pattern are such labor market trends as union decline and the falling real value of the minimum wage, but also of concern is the possible contribution of decreased demand, caused by factors such as skill-biased technological change. To investigate the relative importance of these determinants, the author, using CPS data, compares the experiences of wage-and-salary workers with those of the self-employed. Wages apparently declined little for less-educated self-employed workers, but greatly for similar wage-and-salary workers. Because self-employed workers are affected by the same demand shocks as wage-and-salary workers but are not subject to labor market institutions such as the minimum wage or labor unions, the author concludes that the main source of the observed negative real wage growth was the decline of labor market institutions, not skill-biased technological change.

Labor markets and productivity in developing countries

In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural–urban migration. We investigate the effects of labor market institutions, different types of growth, and company taxes on labor market outcomes and aggregate productivity. We quantify these effects by calibrating the model to data for Mexico, and show that matching frictions can lead to a large informal sector when formal sector workers have substantial bargaining power.

Effects of labor market institutions and establishment characteristics on gender wage inequality in Africa

PurposeThe purpose of this paper is to investigate the major determinants of establishment level gender pay gap, with a particular focus on analysing the effects of labor market institutions.Design/methodology/approachA two‐stages procedure is used in analysing the varying impacts of labor market institutions and firm level characteristics on gender wage gaps in the Nigerian urban labor market, using information from worker and establishment level survey data.FindingsPrimarily it was found that labor market institutions such as unions, and firm characteristics such as ownership, affect the level of gender wage inequality at the firm level. It was also found that unions have significant influence on firm level gender wage gaps in Nigeria, where they are historically known to be strong. Specifically the paper shows that wage gaps are higher in unionized firms in Nigeria because women are generally less likely to join unions, thus being less likely to benefit from union‐induced wage premiums; and within unionized firms a higher rate of unionization tends to reduce gender wage gaps because the higher the rate of unionization in a firm, the higher becomes the probability of women being members, and that raises the likelihood that they get union induced wage premiums. Public enterprises however are found to be more gender‐egalitarian compared with private firms; and firm level investment on workers' training plays an important gender wage‐gap narrowing role.Originality/valueThe paper is original in that it investigates the relationships between institutions and labor market outcomes in an African context, using survey data from the most populous country in the region.