Labour Market Reforms Research Articles

Are export earnings from India’s bilateral intra-industry trade with the US and China robust enough?

PurposeThis paper aims to explore whether India’s export basket in the bilateral intra-industry trade (IIT) with two of its top trading partners characterize robust export earnings or not. This is pertinent for two reasons. First, India has a persistent problem of current account deficit for over decades now. Second, whether India’s export diversification strategy by participating in global value chains to improve export share in the world market led to the problem of the fallacy of composition.Design/methodology/approachThis study considers bilateral trade data between India-USA and India-China at the HS-6 digit level over the period 1990–2018. The magnitude of total IIT is computed using the Grubel and Lloyd (1971) index. This paper then uses the unit value dispersion criterion to disentangle the magnitude of total IIT into horizontal and vertical IIT. Through a stepwise econometric exercise, this paper explores the attributes of exported goods in the IIT basket in terms of the directions of ToT, export share and export-price elasticity.FindingsAcross the two country pairs, the major contributors to the upsurge in IIT are five manufacturing industry groups of chemical, plastics and rubber, textiles, base metals and machinery and mechanical appliances. Across the industry groups, the dominant form of IIT has been low vertical IIT. Most of the industry groups do not characterize robust export earnings as the commodity groups have an elastic demand and an increasing trend of Terms of Trade (ToT). The exceptions are the industry groups of chemicals and textiles in India-China and India-USA, respectively.Research limitations/implicationsThe concern of slim export earnings in most industry groups offers scepticism in maintaining the sustainability of the current account. The problem of the fallacy of composition also cannot be ruled out given the dominance of low vertical IIT. This study argues that these industry groups need to engage in labour market reforms and require access to easy credit to achieve competitiveness in the world market.Originality/valueThe analysis performed in this paper attempts to integrate the Prebisch-Singer hypothesis in the context of IIT. Empirical evidence to such an issue is not profound.

Fiscal and External Deficits Nexus in GIIPS Countries: Evidence from Parametric and Nonparametric Causality Tests

This paper investigates the relationship between fiscal and external deficits in five European Union countries (Greece, Ireland, Italy, Portugal, and Spain) using quarterly data for the period 1980:1–2020:1. Literature on the relationship between these series used linear techniques, but generally reported inconclusive results. Nonlinearity has been overlooked even though fiscal policy is likely to exhibit nonlinearity due to its sensitivity to political decisions. To capture this nonlinearity behaviour, nonlinear causality techniques are applied here in addition to the usual linear techniques used in the extant literature. The results show that there is evidence of unidirectional nonlinear causality from trade balances to government deficits in Greece and Italy, and a nonlinear unidirectional causality from government deficits to trade balance in Portugal. The results also indicate evidence of a nonlinear bi-directional causality between the trade and government balances in Ireland and Spain. The policy implication of these results is that governments of these countries need to address fiscal deficits to manage their trade balances. Policies that will improve the countries’ revenue base, such as tax and labour market reforms as well as capital market reforms to engender productivity and increase competitiveness, would be beneficial.

Firing Costs and Decoupling of Technological Invention and Post-invention Investments

We show that employment protection laws, which increase firing costs, decouple invention and post-invention investment by reducing the coordination benefits of collocation. The decoupling played a significant role in US employment decline and jobless growth, the vertical and geographical disintegration of firm activities, and underinvestment relative to Tobin’s Q. Technological inventions lead to employment growth, but employment protection laws almost fully negate this positive effect, especially in fast-changing and high-offshore industries and for radical inventions. We find limited effects on firm revenue and profits, as firms bypass increased firing costs through capital substitution and increased JV and alliance activities, driven in part by collaborations with foreign partners. Our findings suggest labor market flexibility as a critical link between invention and firm growth dynamics and question the efficacy of technology-led revival of the US manufacturing employment without the accompanying labor market reforms.

A matter of fragmentation? Challenges for collective bargaining and employment conditions in the Spanish long-term care sector

The long-term care system in Spain has been characterised by decentralisation, marketisation, fiscal austerity and its reliance on informal family care and cheap migrant labour. Focusing on home-help services, this article addresses the extent to which the sector’s multi-level system of collective bargaining can be characterised as fragmented and whether this has had a negative effect on employment conditions. The research involved an analysis of the legal and collective bargaining framework, expert interviews and employee focus groups. We argue that the precedence given to sectoral agreements within public procurement processes is one main factor preventing a move towards ‘disorganised decentralisation’ in the aftermath of the 2012 labour market reform. Moderate decentralisation has favoured heterogeneity in pay and working conditions at regional and provincial levels. However, these mid-level collective agreements have improved standards with respect to the national collective agreement, and there has been a minor increase in the number of company-level collective agreements since the reform. The limited professionalisation, the lack of recognition of skills and effort in occupational classifications, and the organisation of working time emerge as key contributors to the sector’s poor employment conditions.

Fiscal reform: a computable general equilibrium (CGE) analysis for the Kingdom of Saudi Arabia

PurposeThis paper aims to provide a quantitative assessment of the broad economic effects of tax policy reform in the Kingdom of Saudi Arabia (KSA).Design/methodology/approachUsing a dynamic computable general equilibrium (CGE) model of the KSA, three simulations are run. The first simulation is the baseline simulation, which generates growth paths of the Saudi economy in the absence of tax reform. In developing the baseline simulation, this study incorporates forecasts from the International Monetary Fund. The remaining simulations are policy simulations. A policy simulation deviates from the baseline simulation in response to a policy change. In the first policy simulation, this study introduces a value-added tax (VAT) that generates SAR 35bn. This study assumes budget neutrality with the additional tax revenue transferred to households via a lump sum payment. In the second policy simulation, this study introduces a corporate income tax that generates SAR 35bn. This study then calculates and compares the distortion these taxes introduce into the economy.FindingsThis study finds that although the introduction of new taxes increases government tax revenue, markets are distorted lowering efficiency and production. An introduction of VAT increases the cost of consumption relative to the cost of production. As a consequence, the real cost of labour increases lowering employment in the short run. Employment moves to the baseline, as wages adjust capital and real gross domestic product (GDP) is below base throughout the simulation period. The second simulation is an increase in the corporate tax rate with lowers the post-tax rates of return investors receive. This simulation shows that the negative impact on investment, capital and GDP is larger with the introduction of a corporate tax than with the VAT.Research limitations/implicationsLiterature focusing on tax policy reform in the Gulf Cooperation Council and, specifically, Saudi Arabia is limited. This paper contributes to the literature by focusing on the following: understanding the impact and mechanisms through which changes in taxation impact the economy more generally; understanding the potential harm caused to allocative efficiency and production due to taxes; and ways in which fiscal reform might complement other reforms such as efforts to diversify the economy, labour market and energy price reforms. This improves the information base available to policymakers charged with designing an optimal tax system that meets all future requirements of a country such as the KSA.Originality/valueThe authors developed and applied a CGE model for the KSA to analyse the impact of VAT and corporate tax on the Saudi economy. To the best of the authors’ knowledge, there are no recent CGE models for Saudi Arabia that have been used for tax policy or quantifying the potential harm to the economy when new taxes are introduced.

MANAGEMENT OF INFRASTRUCTURE OF INNOVATIVE PRODUCTION IN THE CONTEXT OF STIMULATION OF PARTNERSHIP RELATIONS OF DEVELOPMENT OF SCIENTIFIC ACTIVITY FOR THE PURPOSE OF MAINTENANCE OF ECONOMIC SAFETY

Introduction. The labour market is one of the key in the market economy. In turn, the level of adjustment of the use of the factor "labour" determines the effectiveness of the use of factors "capital" and "land". The factor of "labour" is inherently social and economic. On the one hand, social and demographic processes determine the total population, its distribution by sex and age groups and opportunities for participation in production. On the other hand, the economic characteristics of the welfare of the population determine its opportunities for education, training, realization of professional abilities, participation in the processes of social division of labour. In Ukraine, it is important to carry out balanced reforms in the labour market based on identifying general trends, researching existing challenges and justifying areas of advisory support for its market transformation, which determines the relevance of the study in theoretical and practical terms. Therefore, the aim of the article was to identify general trends, existing challenges and areas of advisory support for labour market reform. Methods. The dialectical method of cognition and the system method for studying the issues of labour market reform and advisory support for the implementation of such processes are chosen as the theoretical basis of the article. In writing the article, general scientific methods of cognition were used, namely: methods of analysis, synthesis, analogies, economic and statistical, graphic, expert, generalization method. The method of economic and statistical analysis is used to determine the main trends in the labour market, graphical - to visualize the results, the expert method - to reveal the features of advisory support of market transformation; methods of analysis, synthesis and analogies - to identify approaches to solving existing problems, the method of generalization to form the conclusions of the study. Results. - the main trends in the labour market of Ukraine are identified, some of which are: trends in the decrease of the total population (by 15%), the number of economically active population (by 20%), the level of economic activity of the population (by 2.6%). There was also a decrease in the unemployment rate by 3.2% and the reasons for unemployment of the registered unemployed; - stressed the importance of taking into account the existing challenges in the preparation of documents on labour market reform, one of the most important of which is the spread of globalization and the need to innovate to ensure the proper level of product competitiveness in the market; - proved the expediency, in public terms, taking into account not only economic but also social components in the process of structural transformations in the labour market; - the importance of involving various social forces in solving the existing problems of labour market reform is emphasized, accordingly, the involvement of public and private advisory services and increasing control over their activities in the implementation of any reform measures will be effective; - the directions of advisory support of labour market reform are substantiated, the main essence of which is: accentuation of efforts to solve problems of organizational structuring of the labour market in the context of preparation of answers to existing challenges. ) in ensuring the increase of competitiveness of its products and alternative professional change of activity. Discussion. Prospects for further research are to determine the features of the involvement of public and private advisory services and their interaction in solving public problems with public authorities. Keywords: labour market, reforms, tendencies, challenges, directions of advisory support, social efficiency.

Labor Market Reform Options to Boost Employment in South Africa

Labor Market Reform Options to Boost Employment in South Africa

UNEMPLOYMENT HYSTERESIS IN MIDDLE-INCOME COUNTRIES

Business cycles pave the way for asymmetry in the unemployment rate behavior with rapid increases during recessions and slight decreases in expansions. It, in turn, may raise the non-accelerating inflation rate of unemployment and the cost in terms of inflation of any demand stimulus policy. The recent jump in unemployment worldwide due to the COVID-19 pandemic and the government’s stimulus package following it raises questions about the cost of such a decision. We use the smooth transition model (STR) to analyze unemployment dynamics on quarterly data over the last two decades for fifteen middle-income countries. Our results suggest the absence of hysteresis except for Bulgaria, Mexico, and Ukraine. Our policy recommendation for these countries is the necessity of labor market reforms, as hysteresis will considerably reduce any economic stimulus on unemployment.Keywords: Unemployment, hysteresis, STRJEL Classification: C10, J60

The Development of Employment Protection Legislation in the United Kingdom (1963-2013)

ABSTRACT In Britain, employment protection legislation developed in ways far more dynamic, contradictory and toothless than is commonly assumed by conventional theories. Contrary to prevailing understanding, the first job security laws were intended to increase labor market flexibility, encourage mobility and undermine union power. They were introduced by Conservative governments, curiously offering organized labor some benefits, even though both sides of industry opposed legal intervention. Hence, job security could be obtained and extended without capital (and at first labor’s) consent. What is more, opposite to the liberalizing pressures one would expect to see in an archetypal market economy, the UK has been characterized by far more protective measures than deregulatory ones. However, the record shows that in many ways they have failed to offer tangible benefits to workers. Thus, there is a significant gap between law in the statute books and law in action. Additionally, two-tier labor market reform has contributed to the growing dualism between insiders and outsiders and might explain why deregulation of temporary employment has been the name of the game in the last couple of decades in the UK.

Understanding the positions taken by moderate union confederations and centre-left parties during labour market reforms in Portugal and Spain: Why the configuration of left parties and trade union confederations matters?

The insider-outsider politics approach conjectures that moderate unions and centre-left parties safeguard the interests of insiders and neglect outsiders in labour market reforms. This article challenges this hypothesis. By comparing the positions taken by centre-left parties and moderate union confederations during labour market reforms in Portugal and Spain (1975–2019), it shows that while they may indeed protect insiders, they sometimes do the opposite. To explain this, the article argues that more attention must be paid to the configuration of left parties and confederations. In Portugal, where communist and radical left parties were strong, the centre-left was afraid of losing outsiders’ electoral support, and thus it did not follow a pro-insider strategy. This was reinforced by the fact that the centre-left had to face the opposition of a strong class-oriented confederation that was not willing to commit to two-tier reforms. This was not what happened in Spain. The centre-left, supported by a union confederation, undertook a two-tier reform in 1984 because there was a different configuration of left parties and confederations. Notwithstanding, this was not a stable equilibrium because this confederation changed its position over time when it realized the negative consequences of these reforms. Henceforth, their strategy became more pro-outsider.

Labor Market Reforms and Earnings Dynamics: the Italian Case

Labor Market Reforms and Earnings Dynamics: the Italian Case

How to Gain the Most from Structural Conditionality of IMF-Supported Programs

Structural conditionality of IMF-supported programs is designed to support structural reforms by countries borrowing from the IMF. Taking stock of program conditions and their implementation, this paper finds that conditionality focuses on fiscal, monetary and financial issues—areas where IMF expertise is strong—and shies away from structural areas such as labor or product market reforms. Hence, tackling deep-rooted structural issues during IMF-supported programs often remained elusive. To ensure countries gain most from IMF conditionality, the paper outlines an evaluation matrix for prioritizing and designing structural reforms, and applies it to case studies.

Two-Tier Earnings Structures and labour Market Reform

ABSTRACT Two-tier earnings structures have recently received renewed attention in the context of labour market reform, but relevant evidence for emerging economies is lacking. Relying on four waves of repeated cross-section individual-level micro data and Oaxaca-type earnings decompositions, this study investigates the interplay between the tightening of employment protection legislation in China through the introduction of the Labour Contract Law in 2008 and the earnings gap between covered and uncovered urban workers. It shows that in urban China average monthly earnings are significantly higher for workers with as compared to those without an employment contract and documents that labour market reform went hand in hand with a doubling in the log earnings gap. As there were no newly emerging differences in observable characteristics between the two groups of workers, this doubling was entirely due to reinforced impacts of differences in workers’ observable characteristics on earnings. Results are consistent with prominent theoretical models of a two-tier labour market, complement existing results for Europe and are robust to a wide range of alternative specifications, including those that addresses selection into labour force participation.

Dualisation as Class Conflict: The Case of Labour Market and Vocational Training in Germany

Popular accounts of labour market reforms in Western Europe have identified a process of dualisation over the last three decades, whereby service sector employ-ment has been deregulated while workers in the core manufacturing sector still en-joy high levels of employment protection and high wages. Two different labour market logics are thought to be in place between core and peripheral sectors and to co-exist in a stable equilibrium nurtured by the co-incidence of interests between capital and labour in core manufacturing sector, who jointly acted to safeguard workers in core sectors at the expense of peripheral service sectors. Building on the case studies of labour market and vocational training reform in Germany, this ar-ticle challenges this account. It is argued that processes of dualisation are best conceptualised as the contested outcome of a political conflict between capital and labour. Dualisation is not a stable equilibrium but rather the result of bargain-ing processes between employers who push for liberalization and unions who try to prevent it or - at least - mitigate it.

Employment Dualism in Crisis: Labour Market and Welfare State Reforms Before and During COVID-19

Dual labour markets have been a specific feature of employment systems in Con-tinental Europe after an initial wave of deregulation that started in the 1980s in a situation of high and persistent unemployment. Since then, the institutional duali-sation of employment by type of contract has had massive implications on the quality and quantity of jobs. However, while dualisms were conceived as inevita-ble and stable, the perception has become more nuanced and dynamic, account-ing for partial dedualising steps observable over the last decade in particular. This paper gives an overview of the history of dualisation and dual labour markets before addressing current challenges arising from the digital transition and the COVID-19 pandemic. It concludes with a discussion about potential policies to overcome labour market dualisms.

Market Reforms at the Zero Lower Bound

AbstractThis paper studies the impact of product and labor market reforms when the economy faces major slack and a binding constraint on monetary policy easing—such as the zero lower bound (ZLB). To this end, we build a model with endogenous producer entry, labor market frictions, and nominal rigidities. We find that while the effect of market reforms depends on the cyclical conditions under which they are implemented, the ZLB itself does not appear to matter. In fact, when carried out in a recession, the impact of reforms is typically stronger when the ZLB is binding. The reason is that reforms are inflationary in our structural model (or they have no noticeable deflationary effects). Thus, contrary to the implications of reduced‐form modeling of product and labor market reforms as exogenous reductions in price and wage markups, our analysis shows that there is no simple across‐the‐board relationship between market reforms and the behavior of real marginal costs. This significantly alters the consequences of the zero (or any effective) lower bound on policy rates.

Labor market reform and innovation: Evidence from Spain

We analyze the effect of a labor market reform on firms’ product innovation. The reform, which amounts to a natural experiment, differentially reduced firing costs for some firms, thereby lowering adjustment costs in the presence of demand uncertainty. Using a difference-in-differences framework, we show that the reform increased product innovations. We also provide evidence that the reform induced upgrading of product quality and enabled firms to grow faster and enter new markets. The effects are concentrated in industries with high levels of demand volatility and R&D intensity, where flexible adjustments to unexpected shocks are important.

Employment Protection and the Direction of Technology Adoption

We study the impact of employment protection legislation (EPL) on firms’ innovation choices, through an event-study analysis of several labor market reforms occurring in Europe over 2000-2016. Data on firms’ technology adoption from the Community Innovation Survey reveal that substantial drops in EPL for temporary workers prompt a reallocation of innovation efforts towards the introduction of new products, away from process innovation aimed at cutting labor costs. Among innovative firms, the share of product innovators increases by 15% of the pre-reform value (10pp in absolute terms), while the share of firms specializing in process innovation falls by 35% (also 10pp).

Hello again, Mr Macfarlane: Tertiary colleges for the twenty-first century

This paper revisits the Macfarlane Report of 1980, the first draft of which recommended the dissolution of school sixth forms, sixth form colleges and other providers of postcompulsory education and training, and the establishment of a national system of tertiary colleges across England – a programme of reform which would effectively have extended the principles of comprehensive education to the post-compulsory level. Whilst the rejection of the Macfarlane committee's plan may represent an opportunity which has been lost forever, the paper presents a case for the revival of tertiary colleges across England. This, it is argued, would provide a much more coherent, 'democratised' system of provision than the current model of further education based on the neoliberal principles of markets, competition, diversity and choice. A national system of tertiary colleges would, I contend, be able to deal far more effectively – and equitably – with some of the significant social and educational challenges now facing contemporary British society, although a concomitant programme of labour market reform is, I argue, also necessary to create sustainable and meaningful employment, and stimulate demand for learning.

Labor and Product Market Reforms and External Imbalances

We explore the impact of major labor and product market reforms on current account dynamics using a new “narrative” database of major changes in employment protection for regular workers and product market regulation for non-manufacturing industries covering 26 advanced economies over the past four decades. Our main finding is that product market deregulation is associated with a weakening of the current account, while labor market deregulation is associated with an improvement. These effects are transitory and driven by both saving and investment responses. Labor and product market reforms both have a more positive impact on the current account balance when implemented under weak macroeconomic conditions. Our results are broadly consistent with predictions from recent DSGE models with endogenous producer entry and labor market frictions.