Labor Market Regulations in the Context of Structural Transformation
Ranjan, Priya; Hasan, Rana; Eleazar, Erik Jan | April 2018
Abstract
This paper constructs a theoretical model to study labor market regulations in developing countries within the context of structural transformation. When workers are risk averse and the market for insurance against labor income risk is missing, regulations that provide insurance to workers (such as severance payments) are efficiency enhancing and promote structural transformation. However, regulations that simply create barriers to the dismissal of workers not only impede structural transformation, they also end up reducing the welfare of workers. The implications of some other issues like general regulatory burden, weak state capacity, and minimum wage regulations are analyzed as well. The paper provides some empirical evidence broadly consistent with the theoretical results using cross-country data. While dismissal regulations increase the share of informal employment, severance payments to workers do not.
Citation
Ranjan, Priya; Hasan, Rana; Eleazar, Erik Jan. 2018. Labor Market Regulations in the Context of Structural Transformation. © Asian Development Bank. http://hdl.handle.net/11540/8297. License: CC BY 3.0 IGO.ISSN
2313-6537 (print)
2313-6545 (electronic)
Keywords
Economic Crisis
Economic Efficiency
Economic Policies
Regional Economic Development
Public Sector Wages
Crisis
Unemployment
Economic cooperation
Gross domestic product
Employment
Wage payment systems
Wages
Financial crisis
Labor economics
Regional economics
Guaranteed annual wage
Wage differentials
Wages and labor productivity
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