Evaluating Labour Market Reforms: Policy Choice, Relevance, and Evidence of Results

Transcription

1 Evaluating Labour Market Reforms: Policy Choice, Relevance, and Evidence of Results M A R I Y A A L E K S Y N S K A ILO G 2 0 S E M I N A R A S S E S S I N G T H E I M P A C T O F S T R U C T U R A L R E F O R M S P A R I S, 1 J U N E

2 Outline of the presentation G20 labour market reform agenda What do we know about impacts? The case of employment protection law (EPL) Challenges in measuring institutions in developing countries Avoiding a fragmented approach to labour markets

3 1. G20 labour market reform agenda G20 reform agenda is based in a large part on G20MOD, which in its turn is strongly influenced by the OECD Going for Growth Methodology Labour taxes EPL UB ALMPs Child care

4 Evidence: a snapshot The OECD Going for Growth Methodology choice of reform measures (type and direction), however, is not entirely consistent with the existing empirical evidence; the inconsistency being mitigated by the country-tailored actual policy advice This leads to inconsistencies between the empirical evidence, the advice that countries receive through the OECD Going for Growth Methodology, and the G20MOD underlying the extra 2% goal Moreover, reliable estimates from empirical studies are often unavailable for developing and emerging economies, or in a post-2008 setting.

5 2. Expected impacts? Example of EPL One of the most controversial labour market institutions Theory: costs of firing modify incentives to hire. Thus, EPL affects employment flows, while stocks are relatively unchanged Empirics: over two hundred studies to date, showing negligible aggregate effects in both directions (if any), depending on the set-up. Certain consensus: groups at the margins of the labour market are affected the most.

6 0,2 0,4 0,5 0,7 0,8 1,0 1,1 1,3 1,4 1,6 1,7 1,9 2,0 2,2 2,3 2,5 2,6 2,8 2,9 3,1 3,2 3,4 3,5 3,7 3,8 3,9 4,1 Employment rate (%) EPL: Some of the most recent consensus views on employment effects The World Bank and the ILO agree on the existence of the plateau effects: the relationships between strictness of EPL and aggregate employment is non-linear Relationship that fits the evidence 55 Standard assumption Source: Cazes et al., 2012; World Bank, 2013 Strictness of EPL (OECD indicator)

7 EPL: Some of the most recent consensus views on income and productivity effects ILO research also shows a non-linear relationship between EPL and private business investment: only particularly strict regulations have negative effect; in all other cases the relationship is null or slightly positive. Source: Cazes et al., 2012 IMF (WEO, 2015) also shows that labor market regulation is not found to have statistically significant effects on total factor productivity, in an analysis based on 16 G-20 countries.

8 Level of Employment Protection in G-20 Countries, EPL in G20 EPL in the world Source: ILO, 2015

9 3. Challenges in measuring institutions Level, Coverage, Compliance: An analytic framework Level Coverage Compliance

10 Legal Coverage of Employment Protection Legislation, ,0 0,8 0,6 0,4 0,2 0,0 COVERAGE All Employees COVERAGE Employed COVERAGE Employees Private Sector Source: ILO, 2015b

11 Compliance with Employment Protection Legislation No systematic data, but examples of approaching the issue: Survey questions on the receipt of severance pay by eligible workers Labour inspections statistics Court statistics on labour disputes (percent of cases brought to courts, percent of winning)

12 Coverage and compliance: Example of Indonesia Labour force: 100% Of which, legally covered by EPL: ~34 % Of which, in complying firms:~30% R Job separations Of which, eligible to severance: ~ 20% R = Relevance of the system: Employees who received severance pay as proportion of all eligible: ~ 30% Employees who received severance pay as proportion of all separations: 6% ** Ratio of actual amount received to legally entitled severance pay: :~38.5% Source: ILO, 2015; Brusentsev et al., 2012; World Bank Enterprises Survey, 2015

13 Key challenges and reforms that work Does it make sense to look only at levels of regulations, and to forecast effects of the changes in levels, if we do not account for coverage and compliance? Compliance may be endogenous: how do we strike the right balance between the level and the compliance? However, compliance is a function of the level of regulations, but not exclusively, as witnessed by examples from the both ends of levels Should not the right question be the improvement of the relevance of the institutions, rather than uniquely of the level of protection that they offer? Recent AER (Meghir et al., 2015) evidence on Brazil: improving compliance by raising enfoncement clearly leads to improved welfare without negative impacts on employment

14 Labour Market Institutions Labour taxes EPL UB ALMPs Child care

15 4. Avoiding a Fragmented Approach to Labour Markets Labour taxes EPL UB ALMPs Childcare Wages Collective Bargaining Working hours OSH Maternity Protection Old Age Social Security

16 Philippines Viet Nam Brazil Mali Mexico Turkey Costa Rica Indonesia Peru India South Africa Example of Minimum Wage coverage mid-2000's late 2000's Source: Belser and Rani, 2015, in Berg, 2015

17 Viet Nam Mexico Brazil Turkey Indonesia Peru Costa Rica Mali Philippine South Africa India Rate of compliance Estimated rate of compliance with minimum wage legislation in selected developing economies 100 mid 2000s late 2000s Source: Belser and Rani, 2015, in Berg, 2015

18 Example of Collective Bargaining coverage Source: ILO, 2015c The weighted average for the EU is 58%

19 Also, a balanced approach which considers demand-side effects A wide range of labour market institutions (e.g., minimum wages, collective bargaining, social protection) have significant positive effects on aggregate demand and economic growth The tendency of declining labour income share (driven by widening gaps between wages and labour productivity) and widening inequality These are known to be associated with the weakening of labour market institutions (IMF, 2015, Berg, 2015) It is important to consider the risk that G20 labour market reform agenda may worsen demand deficits in some countries

20 Final remarks The need of certain reforms in certain countries is not denied Rethinking institutions: shifting the debate from levels of regulations to a reform strategy that can improve the functioning of institutions Institutions should be correctors of market failures Country-specific tailored approach is needed, taking into account the complexity of the institutional system A more balanced policy package is needed to address both aggregate demand and growth potential.

21 Thank You

22 References Belser, P., U. Rani, Minimum Wages and Inequality. In Berg, J. (Ed), Labour Markets, Institutions and Inequality. Edward Elgar, ILO: Geneva. Brusentsev, V., D. Newhouse, W. Vroman, Severance Pay Compliance in Indonesia. World Bank Policy Research Working Paper Cazes, S., S. Khatiwada,, M. Malo, Employment Protection and Collective Bargaining: Beyond the Deregulation Agenda, ILO Employment Working Paper No Gimpelson, V., R. Kapeliushnikov, A. Lukiyanova, Employment Protection Legislation in Russia: Regional Enforcement and Labour Market Outcomes. ESCIRRU Working Paper No. 11. Berlin. ILO, Employment Protection Legislation Summary Indicators in the Area of Terminating Regular Contracts (Individual Dismissals). ILO: Geneva. ILO, 2015b (forthcoming). Database on EPL Coverage. ILO: Geneva. ILO, 2015c (forthcoming). Database on Collective Bargaining Coverage. ILO: Geneva. IMF, World Economic Outlook. Uneven Growth: Short- and Long-Term Factors. IMF: Washington. Meghir, C., R.Narita, J.-M. Robin, Wages and Informality in Developing Countries. American Economic Review, 105(4): OECD, Going for Growth. OECD: Paris. World Bank Enterprises Survey, Available online at: Accessed: May World Bank, The World Development Report 2013: Jobs. WB, Washington, DC.