Labor Market Institutions Research Articles

Designing Labor Market Institutions in Emerging Market and Developing Economies: A Review of Evidence and IMF Policy Advice

This paper reviews the state of theory and evidence on the design of labor market institutions in emerging markets and developing economies. Compared with advanced economies, these economies tend to have larger market failures, which creates a strong case for government intervention. But they also face larger risks of policy failures due to informality and limited administrative capacity. We draw specific implications from this tension for the design unemployment insurance, job protection legislation, minimum wages and wage bargaining systems. We then use text mining techniques to identify and review a decade of IMF recommendations in these areas for 30 emerging market and developing economies.

Financialization, labor market institutions and inequality

The last three decades have witnessed rising inequality and deepening financialization in post-industrial democracies. A rapidly growing literature has linked these two phenomena. We go beyond existing scholarship by specifying which aspects of financialization can be expected to increase inequality and where in the income distribution this effect will occur. We also show that this effect is contingent on institutional context. We posit that the shareholder model of corporate governance and the growing demand for financial professionals are the two dimensions of financialization that drive up pre-tax income inequality. Nevertheless, the spread of the shareholder value model only benefits the very top income earners. We further argue that the institutional strength of labor shapes the relationship between financialization and inequality. We analyze effects of indicators of these two dimensions of financialization on the top 1% and the next 9% income shares and on the 90:50 earnings ratio. We test our hypotheses with data on 18 post-industrial democracies between 1960 and 2015.

Efficiency and Distributional Effects of the Two-Tracked Labour Market Institutions in Albania

This study examines the efficiency and distributional effects of selected labour market institutions in Albania, a rather under-researched country. An initial overview of the post-communist developments articulates why Albania has the poorest labour market performance among other South East European countries. Using a set of mixed qualitative and descriptive quantitative methods we find evidence of inefficient segmental effects and a predatory structure of labour market institutions which noticeably diverge from the efficient institutions point of reference. The institutional/welfare regime at the cross-national level points out at a relationship between the labour market institutional framework and labour market performance, as measured by unemployment. At the country level, a disproportional relationship between the ‘de jure’ labour market regulation and unemployment is identified, which is also moderated by the interaction between labour market and economic institutions.

Labor flows across firm size, age, and economic sector in Colombia vs. the United States

This paper compares labor market flows between a developing economy, Colombia, and a developed one, the United States (US). In a comparative framework, we explore measures of labor market flows across dimensions such as firm size, age, and economic sector. This comparison allows us testing, for both countries, a series of interesting hypothesis suggested in the literature, namely the negative systematic relationship between firm size/age and employment growth rate. We find that labor market fluidity in the US labor market is substantially higher than in Colombia and that the churning rate is twice as high for the US market as it is for the Colombian one. We argue that this fluidity gap between the two economies can be explained by, among other factors, the rigid nature of Colombian labour market institutions.

Book Review: Globalization, Labour Market Institutions, Processes and Policies in India: Essays in Honour of Lalit K. Deshpande. By K. R. Shyam Sundar

Book Review: <i>Globalization, Labour Market Institutions, Processes and Policies in India: Essays in Honour of Lalit K. Deshpande</i>. By K. R. Shyam Sundar

Poverty and Social Rights Among the Working Age Population in Post-Industrial Democracies

AbstractThis article explores the determinants of relative market income poverty and poverty reduction among the working age population in 22 advanced industrial democracies. The article revisits Moller et al. (2003) but goes beyond the earlier study in four major ways. First, we are able to measure welfare state effort with social rights rather than expenditure. This allows us to separate the effect of policy from need, which jointly shape expenditure. Second, we bring the analysis up to date, covering some 10–15 more years, which allows us to compare our findings to those of the earlier study and to compare the periods before and after 2000. Specifically, we discuss the declining effectiveness of the welfare state in reducing poverty and the declining importance of partisan incumbency. Third, we pool data from three sources, the Luxembourg Income Study (LIS), the Organization for Economic Cooperation and Development (OECD), and Eurostat Statistics on Income and Living Conditions (SILC), to almost triple the number of observations for analysis compared to past analyses. Fourth, we use newer estimation techniques that deal better with serial correlation. We show that the primary determinants of market income poverty are volume of work as a result of economic and demographic factors, as well as remuneration of work at the bottom of the income distribution driven by labor market institutions. We then show that the main determinants of poverty reduction are social rights; controlling for social rights, need variables are important for explaining poverty reduction as well.

Wage Inequality, Labor Market Polarization and Skill-Biased Technological Change: An Evolutionary (Agent-Based) Approach

We replicate the core model of the well-tested Keynes + Schumpeter agent-based model family, which features an endogenous innovation process in the evolutionary tradition based on invention and imitation. We introduce heterogeneous labor in the form of three different types of workers, representing different skill levels. In addition to a number of other stylized facts, which are reproduced by any Keynes + Schumpeter model, our version also generates wage inequality and labor market polarization due to skill-biased technological change. We introduce various labor market institutions and policies to our artificial economy in order to test, whether and how they affect inequality and polarization. Those policies, which alter relative wages induce an evolution of the technological development towards a lower demand for the relatively expensive type of worker. Policies and institutions that only aim at increasing the relative wages of low- and medium skilled workers therefore prove to be unable to combat inequality in the long run on their own. In order to be effective, those policies must be combined with educative measures that allow the workers to adapt to the changes in labor demand. Our findings have important implications on the design of real-world policies against inequality and polarization, since they shed light on potential unintended consequences of some of these policies.

The impact of labour market institutions on income inequality: evidence from OECD countries

ABSTRACT Using data from 35 OECD countries for the 1993–2017 period, this paper shows that stronger Labour Market Institutions (LMI), such as trade unions and bargaining coverage, contribute to a decrease in income inequality measured by the Gini coefficient. Additionally, there seems to be a positive interaction effect between unions and bargaining coverage. The marginal impact of trade unions (bargaining coverage) is enhanced by the presence of high levels of bargaining coverage (trade unions). Notwithstanding, this impact seems to be higher for bargaining coverage. On average, an increase in unions’ density (bargaining coverage) by 1% leads to an estimated decrease in inequality by 0.30% (0.35%), ceteris paribus.

International Venture Capital Attractiveness and Performance: A Neo- Configurational Perspective

Prior research suggests that market-supporting institutions are critical to attracting international venture capital (IVC), yet venture capital firms have been increasingly investing in countries characterized by institutional weaknesses. Consequently, the role of national institutions in attracting IVC firms remains unclear. We employ a neo-configurational institutional perspective to explore the institutional contexts that make countries attractive to IVC investment and favorable to IVC performance, thus illuminating the implied risk-reward tradeoffs in IVC firm location choice and ability to navigate institutional weaknesses. Utilizing fuzzy-set Qualitative Comparative Analysis, we find that a robust political system, transparent product markets, and openness to competition are key drivers of IVC investment attractiveness, but each requires complementary labor or capital market institutions. In contrast, well-functioning institutions do not necessarily lead to higher performance by IVC firms, suggesting that IVC firms may especially contribute to the success of ventures in economies with institutional weaknesses. We discuss implications for theory on venture capital firm internationalization as well as policy implications particularly relevant to the Asia-Pacific region.

Graduates’ Opium? Cultural Values, Religiosity and Gender Segregation by Field of Study

This paper studies the relationship between cultural values and gender distribution across fields of study in higher education. I compute national, field and subfield-level gender segregation indices for a panel dataset of 26 OECD countries for 1998–2012. This panel dataset expands the focus of previous macro-level research by exploiting data on gender segregation in specific subfields of study. Fixed-effects estimates associate higher country-level religiosity with lower gender segregation in higher education. These models crucially control for potential segregation factors, such as labor market and educational institutions, and gender gaps in both self-beliefs and academic performance in math among young people.

Integrative Model of Building the Education System as a Tool of Providing Well-Balanced Transforming Labour Market

The article provides a new approach to building a system of continuous education as interdisciplinary synthesis of theoretical, methodological and instrumental tools of analyzing, forecasting, projecting and state governance. These problems are discussed in the context of labour market stability. The research object is the processes of developing the fundamental institutions of labour market in their interconnection with education and economic systems of mezzo-level, whose complication could hinder the use of classical instrumental means of analysis and promote the attraction of new models, including those based on cognitive and cenology approaches. The key lines in academic research in the field are being studied with special focus on approaches to shaping a new institutional model of the education system. To attain the set goal tools are used, which take into account complexity of all sub-systems being investigated, including versatile nature of processes taking place on labour market and their interconnection, which leads to impossibility to single out and research in detail separate phenomena. The theoretical and methodological approach to forecast and governance of well-balanced labour market at the expense of coordination between key stakeholders’ interests and principle institutions relies on laws of imitation and cenology modeling, which can ensure realization of strategic goals of sustainable development through building the optimum supply within the frames of continuous education.

Employment impact of Covid-19 crisis: from short term effects to long terms prospects

We contribute to the assessment of the employment implications of the COVID crisis by classifying economic sectors according to the confinement decrees of three European countries (Germany, Spain and Italy). The analysis of these decrees can be used to make a first assessment of the implications of the COVID crisis on labour markets, and also to speculate on mid and long-term developments, since the most and least affected sectors are probably going to continue to operate differently until a vaccine or other long-term solution is found. Using an ad-hoc extraction of EU-LFS data, we apply this classification to the analysis of employment in Germany, Italy and Spain but also UK, Poland and Sweden, in order to cover the whole spectrum of institutional labour market settings within Europe. Our results, in line with recent literature, show that the employment impact is asymmetric within and between countries. In particular, the countries that are being hardest hit by the pandemic itself (Spain and Italy, and also the UK) are the countries more likely to suffer the worst employment implications of the confinement, because of their productive specialisation and labour market institutions. Indeed, these were also the labour markets that were more vulnerable before the crisis: characterised by high unemployment and precarious work (especially temporary contracts).

Relational work in Nicaragua’s low-wage labor market

AbstractIn low-wage labor markets, job seekers often rely on referrals from network members to find work. For job seekers, the challenge is to mobilize personal relationships to find work, and for contacts, the objective is to minimize risk while maintaining their relationships. Most of what we know about the low-wage job search comes from studies of societies with highly developed labor market institutions and social safety nets, leaving a gap in our understanding of less-institutionalized settings. This article analyzes the social processes through which job seekers and their contacts manage the risk and uncertainty of the low-wage labor market while managing their relationships with each other in Nicaragua, where steady employment is scarce and institutional supports are few. By applying the relational work framework, which is ideal for studying exchanges that occur among interpersonal relations in contexts of uncertainty, this study shows how job seekers and contacts pursue their goals of employment and risk management while maintaining their relations. Deceptive relational work is deployed by job seekers and contacts to preserve relationships when exchange is either impossible or undesirable, and the deceptive relational work of contacts disadvantages job seekers.

Complementarities between Labour Market Institutions and their Causal Impact on Youth Labour Market Outcomes

Abstract We analyse theoretically and empirically the effects on young people’s labour market outcomes of two specific labour market institutions and their interaction: employment protection legislation and active labour market policy. The paper examines recent policy reforms in Italy focussing on the impact of the 2012 Fornero reforms of employment protection legislation as well as the initial impact of the EU-wide Youth Guarantee scheme introduced in Italy in March 2014. The paper then examines how these two policy reforms interacted. The analysis first confirms the finding that the Fornero reform increased permanent hires particularly amongst the very youngest workers; it then goes on to find that the YG was indeed successful in increasing the hires of young people, although this operated through a statistically significant increase in female hires on temporary contracts. Third, it finds some evidence of a dampening effect of the YG on EPL reforms as predicted by theory.

All in it Together? The Unlikely Rebirth of Covid Corporatism

AbstractThe battle to soften the labour market impact of the pandemic has thrown up some unlikely bedfellows, with trade union leaders competing with business chiefs over who can most fulsomely praise the government’s economic response. But does this entente really presage a new era of ‘Covid‐corporatism’? Crises like Covid‐19 can provide opportunities for temporary social pacts, even in countries lacking the labour market institutions needed to sustain these in normal times, and the ‘social partners’ have shown an unusual willingness to be bold and constructive. But cracks are already appearing over how and when the state should begin its withdrawal from the economy. Unions face structural weaknesses and recruitment problems that will hamper their ability to take full advantage of what will likely prove to be only a temporary lull in hostilities.

Who is the Blockchain Employee? Exploring Skills in Demand using Observations from the Australian Labour Market and Behavioural Institutional Cryptoeconomics

LinkedIn recently predicted that blockchain skills will be the most in-demand skill in 2020, and in 2018 blockchain led the list of the fastest growing skills in demand according to Upwork. But what exactly constitutes the skill set of a blockchain employee? We use Australian labour market data to explore what skills are in demand among the blockchain workforce. We also take a deeper dive and explore what educational qualifications and experience are required of blockchain employees, and how blockchain-related jobs perform on salary scales. We discover that alongside ‘hard’ software engineering skills such as programming languages or computer science, blockchain-related jobs require candidates to have ‘soft’ skills such as creativity, communication and leadership. To explain this, we use institutional cryptoeconomics, applied game theory and applied behavioural science to suggest that the skills demand may be understood as a function of challenges to blockchain adoption. We suggest that for blockchain to enter a mass adoption phase, the industry will need employees with an integrated skill set of both hard software engineering skills and soft behavioural or enterprise skills. Furthermore, blockchain leaders, community leaders and end users will need to gain ‘blockchain literacy’ to overcome the challenge of coordinating expectations by developers and users, who will create network externalities and facilitate rapid, coordinated adoption. We contribute to the evidence-based blockchain literature by using Australian labour market data to derive insight into the challenges posed to the adoption of blockchain as (and if) it climbs out of the current ‘trough of disillusionment’.

No Future, No Training? Explaining Cross-national Variation in the Effect of Job Tasks On Training Participation

Access to further training among adults on the labor market is unequally distributed. In particular, workers in occupations that are likely to be replaced by machines in the future participate less in training. This is mainly because of the job tasks they conduct: workers conducting routine tasks are more likely both to be replaced and to receive less training. As a consequence, technological change may lead to further polarization on the labor market. However, this trend may be cushioned by educational and labor market institutions. In this article, to assess the impact of institutions, the association between job tasks and participation in non-formal job-related training is analyzed in 24 countries from the first and second rounds of the Program for the International Assessment of Adult Competencies (PIAAC). Multilevel regression analysis is applied to test the influence of macro variables on the task gradient in training. The results reveal that tasks are important predictors of training participation in all countries. Comparing the effects across countries, it is found that tracking in initial education increases inequality in training participation owing to abstract tasks. Vocational orientation, on the other hand, reduces the effect. Furthermore, collective bargaining coverage decreases the effects of tasks on training, whereas strong employment protection legislation increases them. This indicates that the inclusiveness of lifelong learning is already influenced by the initial educational system. Strong unions and dynamic labor markets further enhance access to additional training among vulnerable workers.

How does finance influence labour market outcomes? A review of empirical studies

PurposeThis paper reviews economic studies on the effects of various aspects of finance on labour market outcomes.Design/methodology/approachThe paper is a systematic literature review that reviews the weight of the evidence on the relationships between specific elements of finance and labour outcomes. The review is divided into three major sections: (1) job quantity and job quality; (2) distributional effects; and (3) resilience and adaptability.FindingsFinance interacts with labour market institutions to jointly determine labour outcomes. Firm financial structures influence their labour practices – highly leveraged firms show greater employment volatility during cyclical fluctuations, and leverage strengthens firm bargaining power in labour negotiations. Bank deregulation has mixed impacts on labour depending upon the state of prior bank regulations and labour markets. Leveraged buyouts tend to dampen acquired-firm job growth as they pursue labour productivity gains. The shareholder value movement may contribute to short-termism among corporate managers, which can divert funds away from firm capital accumulation toward financial markets, and crowd out productive investment. Declining wage shares of national income in most OECD countries since 1990 may be driven in part by financial globalisation. The financial sector contributes to rising income concentration near the top of the distribution in developed countries. The availability of finance is associated with increased reallocation of labour, which may either enhance or impede productivity growth. Finally, rising interest rate environments and homeowners with mortgage balances that exceed their home's value may reduce labour mobility rates.Originality/valueThis review contributes to the understanding of the effects of finance on labour by reviewing and synthesising a large volume of literature.

Labor market polarization in Britain and Germany: A cross-national comparison using longitudinal household data

Since the 1980s, the share of employment for mid-wage occupations in many advanced countries has decreased while wages for the same occupations have declined relative to the top and bottom of the distribution. The hypothesized explanation of this employment and wage polarization is a phenomenon called Routine-Biased Technical Change (RBTC), wherein new machines and computers substitute for workers in mid-wage occupations that have a high content of routine tasks. Taking advantage of panel data for Britain and Germany, this study follows the work of Cortes (2016) and examines the occupational mobility of workers between occupations that vary in the intensity of routine tasks. Among workers in routine occupations, higher unobserved skills are positively related to switching to higher-paid, non-routine cognitive occupations, while those who have lower levels of unobserved skills are more likely to move to lower-paid, non-cognitive manual occupations. This occupational mobility has resulted in faster future wage growth for all job switchers relative to those who stayed in the routine occupations. The wage polarization found in the British labor market resembles that observed in the US by Cortes (2016) in that routine workers transit down to manual jobs and upwards to cognitive jobs. However, in Germany, which is characterized by different educational and labor market institutions, most workers move from routine occupations to more highly compensated cognitive ones in the face of automation.

The Legal Aspects of Foreigners’ Employment in the Context of the Polish Labour Market Needs

Summary Subject and purpose of work: The publication comprises the analysis of the most important legislation governing the employment of foreigners in Poland and the data of significance to developing legal solutions in this area. The purpose of the paper is to evaluate the suitability of the adopted solutions to the needs of the labour market. Materials and methods: The performed legal analysis is closely related to the statistical analysis of the transformations of the Polish labour market which have taken place over the last 6 years, with particular attention to demographic and economic data. The authors also applied qualitative methods in the form of observations concerning the adaptation of Polish laws to the demand for hiring foreigners, as well as the presentation of the results of surveys analysing the opinions and sentiments of labour market participants, labour market forecasts published on a regular basis, and inspections carried out by authorised entities. Results: The systematic decrease in the Polish population and increasing staff deficits reported by employers are among the most important challenges. The deficits are largely supplemented by Ukrainian employees, yet there are growing concerns that difficulties in acquiring new staff may aggravate, as the competition in attracting foreign staff is becoming increasingly perceptible. In Poland, relevant legal instruments concerning the employment of foreigners are mostly stipulated in the Foreigners Act, the Act on employment promotion and labour market institutions, and in secondary legislation to these Acts. The laws are very complex, they lack comprehensive solutions in the field of foreigner employment policy, while competent offices and authorities experience difficulties in fulfilling their tasks. Conclusions: It is necessary to develop and implement a comprehensive strategy as part of employment policies, taking into account the urgent and actual demand of the labour market for foreigners’ work.