Labour Market Reforms Research Articles

Correction: Dismissal regulation and hiring and dismissal decisions: a decisive factor? the case of the French labor market reforms

Correction: Dismissal regulation and hiring and dismissal decisions: a decisive factor? the case of the French labor market reforms

Diversification and the Resource Curse: An Econometric Analysis of GCC Countries

This research explores the effects of significant global economic shocks, such as the 2008 Global Financial Crisis and the 2020 COVID-19 pandemic, on GDP growth in the Gulf Cooperation Council (GCC) nations. Employing a dynamic generalized method of moments (GMM) model, the analysis highlights the strong momentum effect of lagged GDP growth, where past performance plays a critical role in shaping current economic outcomes. The findings also reveal that natural resources continue to positively influence short-term growth, but with diminishing returns over time, supporting the resource curse hypothesis and underscoring the need for broader structural reforms to ensure long-term sustainability. In addition, the results show that external investments flowing into the country, trade balance, and inflation emerge as key drivers of economic growth. While moderate inflation is positively associated with economic expansion, unemployment exerts a significant negative effect on GDP growth, particularly in models that account for country-specific characteristics. This emphasizes the need for labor market reforms to improve employment rates and support sustainable development. The role of gross capital formation, particularly in both the dynamic GMM and random effects models, further underscores the importance of strategic domestic investment, especially during periods of global disruption. These findings emphasize the critical need for economic diversification in the GCC. Policymakers should focus on attracting foreign investment, managing inflation, enhancing human capital, and boosting domestic investment to mitigate the adverse effects of the resource curse and secure sustainability. While market capitalization and oil rents may stimulate short-term growth, their long-term sustainability remains uncertain without greater diversification. Both external and domestic investments emerge as critical drivers of long-term growth, while persistent challenges such as inflation and unemployment continue to pose risks to economic stability. The study highlights the need to reduce reliance on oil and leverage human capital to build more resilient economies capable of adapting to future challenges. By offering dynamic, empirical insights into the balance between resource reliance and sustainable growth, this research adds valuable insights to the policy discussion on economic diversification in the GCC. Policymakers are urged to prioritize FDI, inflation management, domestic capital formation, and human capital development to mitigate vulnerabilities and ensure sustainable economic growth in the face of ongoing global uncertainties.

Economic Dynamics of Financial Capitalism: Labour Market Reforms, Welfare State Reduction, and the Impact of Technological Changes

Economic Dynamics of Financial Capitalism: Labour Market Reforms, Welfare State Reduction, and the Impact of Technological Changes

Labor market reform as an external enabler of high-growth entrepreneurship: A multi-level institutional contingency perspective

We investigate the impact of friction-reducing labor market reforms on regional high-growth entrepreneurship (HGE) through the effects of reduced legal enforceability of noncompete agreements (NCAs). We draw on new institutional economic theory and the external enablement framework, with insights from the theory of market-preserving federalism, to explore how these reforms enable (disable) HGE within the context of other, concurrent institutional changes at different governance levels. We assemble a novel multi-level longitudinal dataset and employ staggered difference-in-differences estimation to assess causal effects. Our findings suggest that while reducing the enforceability of NCAs can foster regional HGE, the effectiveness of such reforms is heavily influenced by concurrent federal and local institutional changes. In sectors facing significant federal regulatory expansion, the benefits brought by the reduction of NCA enforceability are negated. However, local pro-market institutional changes can counteract the disabling effects of federal regulatory expansion. This highlights the need to consider how the evolving institutional environment influences potential enablers of HGE, cautioning against claims that these labor market reforms (or other exogenous environmental changes) universally yield positive entrepreneurship outcomes.

The macroeconomic impact of euro area labor market reforms: evidence from a narrative panel VAR

Using quarterly narrative evidence, the paper examines the macro-economic impact of reforms of unemployment benefits (UB) and employment protection legislation (EPL) in the euro area from a Bayesian narrative panel VAR. The approach complements micro-econometric approaches by assessing aggregate effects and aligning short- and medium-term effects in a unified framework. I find that liberalizing reforms of UB and regular contract EPL resulted in temporary wage declines and persistent increases in economic activity and employment.

Advancing Labor Market Reforms in Korea

Advancing Labor Market Reforms in Korea

Labour market tightness in the post-COVID-19 era

Since 2020, the labour market in advanced economies has shown resilience against successive supply-side shocks. High job vacancy rates and historically low unemployment, despite a recent weakening of economic growth, imply a lower sensitivity of the labour market to changes in the business cycle, underscoring the need to re-evaluate labour market tightness, as it could increase the risks of wage-price spirals and more restrictive monetary policy. Ιn the present paper, we analyse the degree of labour market tightness and its implications for wages, inflation and monetary policy in two large open economies, the US and the euro area, and in a small open economy, Greece, that has undergone substantial labour market reforms, to explore whether post-pandemic labour market developments have common or idiosyncratic features. We find that policy support measures to address the pandemic and the energy crisis have decoupled unemployment from cyclical fluctuations, with the gap narrowing in 2023. Labour market tightness in the post-pandemic era has mainly been driven by a robust increase in labour demand, while labour supply has reverted to or exceeded pre-pandemic levels in the US, the euro area and Greece. Real compensation per employee lags labour productivity levels in all three economies, whereas it remains below its pre-pandemic level in the euro area and Greece. This suggests that the economies in question could tolerate some further catch-up in real wages in the short term without experiencing inflation.

The effectiveness of applying the economic and technological dimensions of the kingdom of Saudi Arabia’s vision 2030 to achieve the competitive advantage of the Hail Region

This research focuses on examining the impact of Saudi Arabia’s Vision 2030 on the energy industry, specifically in the Hail region, by exploring the role of technological and economic strategies in fostering sustainable energy development. The study aims to identify key factors that facilitate the implementation of Vision 2030 to assess the current energy landscape in Saudi Arabia. By delving into the economic and technological dimensions of Vision 2030, the research seeks to determine the essential components that the Kingdom of Saudi Arabia needs to establish systems and initiatives that align with global scientific and technological advances, ensuring competitiveness and progress in the global arena. By surveying 60 faculty members from Hail University, the study employs a descriptive-analytical approach to unravel how economic activities and technological advancements collaborate to shape a sustainable and competitive energy sector. The findings highlight the crucial role of technological innovations, including advances in administrative processes, human resource management, regulatory frameworks, and technical infrastructure related to energy efficiency and renewable energy technologies. Furthermore, the study evaluates economic aspects such as labor market reforms, skill development programs, and support for emerging energy enterprises. The results underscore the positive impact of technological and economic interventions on the energy sector in the Hail region, with significant improvements in energy project management efficiency and the creation of a conducive environment for sustainable energy practices. The study reveals that the integration of technological and economic initiatives has led to notable improvements in the energy sector, reflected in average values ranging from 68% to 84%. These results underscore the fundamental role of Vision 2030 in advancing sustainable energy development and underscore the importance of leveraging economic and technological strategies to achieve energy sustainability and competitive advantage. This research contributes to understanding how Saudi Arabia’s Vision 2030 is driving progress in the energy industry and emphasizes the importance of integrating economic and technological approaches in shaping a sustainable energy landscape. The findings provide valuable information for policymakers and stakeholders in the energy sector, highlighting the need for concerted efforts to harness economic and technological advancements to promote sustainable energy development. By showcasing the transformative impact of Vision 2030 on the energy sector in the Hail region, this study underscores the originality and importance of research in advancing the goals of sustainable energy development in Saudi Arabia.

Dismissal regulation and hiring and dismissal decisions: a decisive factor? the case of the French labor market reforms

Dismissal regulation and hiring and dismissal decisions: a decisive factor? the case of the French labor market reforms

The politics of pro-outsider labour market reforms: a configurational study

AbstractOver the past decades, the level of regulation of fixed-term contracts has been in flux. Many reforms deregulating these contracts were followed by a regulatory countertrend, a puzzling finding considering influential theoretical expectations like the ones developed by the dualization and liberalization literatures. This paper draws on the comparative employment relations and comparative political economy literatures to identify the drivers of pro-outsider reforms. Furthermore, it develops an innovative argument claiming that governments may rely on support from a ‘domestic coalition’ including workers in permanent contracts, or they can leverage the European link to support their intention of conducting a pro-outsider reform. Each of these paths relies on the assemblage of distinct pro-reform coalitions of policy actors. To test our argument, the paper uses fsQCA. We compare 38 reforms enacted in 16 European countries between 1985–2019. After the fsQCA analysis, we conduct a qualitative discussion of the different paths.

Educational Expansion as a Driver of Longer Working Lives?

This study investigates the contribution of educational expansion to changes in labour force participation among Europeans aged 55-74 between 2000 and 2019, while accounting for changes in educational inequalities in labour market activity. We use data from the European Union Labour Force Survey (EU-LFS) for 26 countries and Kitagawa-Oaxaca-Blinder decomposition methods to analyse the extent to which changes in the education structure may account for rises in labour force participation rates among older workers in these countries, and the degree to which returns to education have changed. Overall, we found that educational expansion is positively associated with increases in labour force participation, albeit with substantial cross-country variation in the scale of this association. A driving factor was the decrease in the share of the population with low education levels, followed by an increase in the share of those with high education levels. While activity rates rose in most countries and among all levels of education, the largest increases were observed among people with a medium level of education. Activity rates of low-educated older workers, especially women, grew at a substantially lower pace in some countries, exacerbating educational inequalities in labour force participation at older ages. The study suggests that educational expansion has been a driver of longer working lives in Europe. However, it also indicates that changes in health, working conditions and age norms at the microlevel, as well as pension and labour market reforms at the macrolevel, can be assumed to have played a dominant role in countries where increases in labour force participation were the most significant.

Reprint of: Quantifying the Germany shock: Structural labor-market reforms and spillovers in a currency union

We examine the effects of unilateral structural reforms within a currency union. Focusing on the surge of German competitiveness following the introduction of the Euro, we first provide reduced-form causal evidence supporting the notion that German structural labor-market reforms in the early 2000s led to a crowding-out of manufacturing employment in other Eurozone economies. To assess the impact of this German competitiveness shock, we build a quantitative multi-sector trade model that features downward nominal wage rigidities, endogenous labor supply, unemployment-insurance benefits and international savings. The fixed nominal exchange rate can create binding nominal rigidities in response to a foreign real supply shock – like the one prompted by the German reforms – resulting in significant contraction of manufacturing sectors and increased involuntary unemployment across other Eurozone countries. We consider a number of counterfactual scenarios, such as the impact of German labor-market reforms in the absence of a fixed exchange-rate regime, the role of coordinated reforms within the Eurozone and a higher average inflation rate.

Labour market reforms, institutional complementarity and the insider–outsider wage gap

Abstract This article provides long-term evidence on how wage differentials between permanent and temporary workers are shaped by institutions that play a key role in labour market dualism, i.e. industrial relations, employment protection legislation and unemployment benefits. A two-step multilevel approach with fixed effects is employed using EU-SILC data for 25 European countries spanning up to 17 years (waves 2004–2020, N = 397) to estimate the moderating effects of several institutions and their interactions on the wage gap by contract type and across the whole wage distribution. The results show that more insider-oriented institutions tend to widen wage differentials and that the impact of institutional reforms on the wage gap varies greatly with the given institutional context. Overall, policy trends towards flexibilization risk widening insider–outsider divides due to accumulating labour market risks for temporary workers, thus increasing labour market segmentation by contract type.

Flexible labor, innovation regimes and the erosion of the Japanese model: Evidence from the Basic Survey on Wage Structure

Due to labor market reforms around 2003–4, Japan has a growing group of ‘non-regular’ workers who are easy to fire, and have poor carrier perspectives. This marks a break with the traditional Japanese model of life-time employment that allowed for intensive in-company training and commitment of personnel. Drawing from a national wage structure survey, we find indications that employment of non-regular workers has a negative impact on productivity (proxied by wages), this negative impact being largest under innovation regimes that require a high cumulativeness of knowledge. Our findings are consistent with neo-Schumpeterian research in Europe which concluded that certain labor market rigidities, while being undesirable from a neoclassical perspective, can be useful to innovation. Our paper confirms the impression from earlier research that structural reforms of labor markets along supply-side lines are likely to be one of the reasons for a substantial decline of productivity growth in major OECD countries since about 2004/05.

Internal migrants, skill complementarity and wage premium for local workers: a micro econometric analysis of Chinese households

China’s rapid urbanization has been driven by large-scale internal migrants, and it is worth exploring the impact of internal migrants on local labor markets. Based on data from China’s population census, population sample survey and urban household survey, this study empirically tests the wage premium effect of internal migrants on local labor, and further investigates the mechanisms of wage premium from skill complementarity, as well as the policy adjustment effect of labor market reforms. The results show that: (1) The wage premium effect originating from migrants is significant, and gradually decreases over time and with the increase of local worker wages. (2) The wage premium effect is more prominent in large cities, mega and super-sized cities, which can be explained by economic agglomeration and division of labor induced by skill complementarities. (3) Labor market-oriented reforms contribute to enhancing the wage premium effect, with marginal effects of 3.71% and 3.64%.

The Role of Corruption, FDI, and Unemployment in ASEAN-5 Economic Growth

Corruption is a global issue that remains unresolved to this day. It can lead to a decrease in investment and inefficiency in government spending allocation, impacting economic growth. Therefore, controlling corruption is a crucial issue that cannot be underestimated. This study uses panel data from 2012 to 2022 in ASEAN-5 countries (Indonesia, Malaysia, Vietnam, Laos, and Thailand). The method used is panel data regression with a fixed-effect model (FEM). The results indicate that foreign direct investment (FDI) has a significant positive effect on economic growth, while the corruption perception index and unemployment have no significant impact in the ASEAN-5 countries. This study suggests that promoting FDI is key to ASEAN-5's economic growth. Additionally, addressing corruption and unemployment through governance and labor market reforms is also crucial for sustainable development in the region.

Dynamic interaction between permanent and temporary employment across manufacturing labor markets in the Mexican states: A structural panel VAR approach

México’s implementation of several labor market reforms aimed to stimulate the flexibilization of labor relationships have brought long-standing concerns among scholars and governmental authorities about a displacement process of permanent by temporary jobs. In this regard, this manuscript aims to respond whether the dynamic interaction between permanent and temporary employment across Mexican states describe a substitution or complementary relationship. By means of implementing a structural panel vector autoregressive model, our estimation results demonstrate that a combination of both types of interaction, substitutive and complementary ones, prevail across manufacturing labor markets at state level. Moreover, a marked heterogeneity among estimated dynamic responses suggests that incentivizing permanent employment would induce stronger substitution effects on its temporary counterpart than, for example, substitution of permanent job positions arising when incentivizing temporary employment.

Who adjusts? Exchange rate regimes and finance versus labor under IMF programs

AbstractWho adjusts under International Monetary Fund (IMF) programs and why? In this paper, I demonstrate that labor groups adjust when there is a fixed exchange rate regime and international financial groups are strong enough to defend the peg. In that case, the Fund substitutes currency devaluation with lowering labor costs via labor market reform. Lower wages are used to increase competitiveness and support exports. In other words, the Fund makes labor ‘cheaper’ through its labor market reform when money cannot be made ‘cheaper’ due to strong international financial interests. To test this theory, I use a mixed-method approach. I complement the case comparison of Latvia and Hungary in 2008–two very similar cases except for their exchange rate regime and the influence of international finance on their economy–with a large-N study using a global sample of IMF borrowers over the years 1989 and 2014. The paper shows that international organizations such as the IMF might amplify the voice of the strong (financial interests) while making the ‘weak’ (labor groups) weaker via their conditionality.

Associations between precarious employment trajectories and mental health among older workers in Germany: Vertical and horizontal inequalities.

The aim of the study was to investigate the longitudinal association between multi-dimensionally measured precarious employment (PE) trajectories and mental health among older employees in Germany. Current data from the German lidA study was used, including panel cases, who participated in all four survey waves (2011, 2014, 2018, 2022). The study comprised 1636 subjects, aged 46 and 52 years at baseline. Group-based trajectory modelling was used to model PE trajectories based on a score combining multiple items from the dimensions employment insecurity and income inadequacy. The association between PE trajectories (2011-2022) and mental health (2022) was tested using weighted logistic regression. We identified a PE trajectory with upward movement that best described 13.6% of the study sample. Representation in this group was socially unequally distributed with noticeably larger shares of female, lower-educated and lower-skilled workers in PE. Women following this trajectory had increased odds [odds ratio (OR) 1.68-1.82] of reporting poor mental health in 2022 compared to their counterparts in constant non-PE. This was not the case for men (OR 0.37-0.51). Our findings highlight horizontal and vertical inequalities with respect to exposure to and consequences of PE. Future labor market reforms should improve protection of women, who will likely be disadvantaged by accumulating employment-related mental health risks over the course of their lives.

A Precarious Path to Partnership? The Moderating Effects of Labour Market Regulations on the Relationship Between Unstable Employment and Union Formation in Europe

Rising employment uncertainty featured by higher risks of being temporarily employed or unemployed is often seen as the driving force behind delayed and declined partnering in Western countries. However, such an employment–partnering relationship is contextualized by labour market institutions and thus could diverge across countries over time. This paper aims to investigate how country-level variations in labour market regulations moderate individual-level effects of unstable employment on union formation, including the transitions into marriage or cohabitation unions. Using comparative panel data for 26 countries from the European Union Statistics on Income and Living Conditions (the years 2010–2019), our multilevel fixed effects models showed that temporary employment and unemployment negatively affected the probability of union formation for single women and men in Europe. Moreover, the negative relationship between unstable employment and union formation was reinforced when labour market reforms were stimulating insider–outsider segregations or decreasing welfare provisions. Specifically, stricter employment protection legislations and higher coverage rates of collective bargaining agreements could reinforce the negative effects of temporary employment and unemployment on union formation, while more generous provisions of unemployment benefits could buffer such negative effects.