Labor Market "Rigidity" and the Success of Economic Reforms across More than 100 Countries

The authors show that labor market policies and institutions affect the effectiveness of economic reform programs. They compare annual growth rates across 119 countries, using data from 449 World Bank adjustment credits and loans between 1980 and 1996. The results indicate that countries with relatively rigid labor markets experienced deeper recessions before adjustment and slower recoveries afterward. The results also disentangle the mechanisms through which labor market rigidity operates. They find that minimum wages and mandatory benefits do not hurt growth. But the relative size of organized labor (in government and elsewhere) appears to matter. Labor market rigidity seems to be relevant more for political reasons than for economic reasons. The authors' findings suggest that not enough attention has been paid to vocal groups (urban, middle-class groups) that stand to lose from economic reform. The implications of the findings for policymakers: There should be less focus on deregulating the labor market and more on defusing the opposition of (vocal) losers. The results are robust to changes in measurement, controls, and sample, and do not suffer from self-selection bias.

Bibliographic Details

Main Authors:	Forteza, Alvaro, Rama, Martin
Language:	English en_US
Published:	World Bank, Washington, DC 2001-01
Subjects:	ADJUSTMENT COSTS, ADJUSTMENT LENDING, ADJUSTMENT POLICIES, ADJUSTMENT PROCESS, ADJUSTMENT PROGRAMS, ANNUAL GROWTH, ANNUAL GROWTH RATE, AVERAGE GROWTH, CHILD LABOR, CONDITIONS OF WORK, COUNTRY-SPECIFIC EFFECTS, CROSS-COUNTRY REGRESSION, CROSS-COUNTRY STUDIES, DATA SET, DATA SETS, DEPENDENT VARIABLE, DEREGULATION, DEVELOPING COUNTRIES, DEVELOPMENT INDICATORS, DEVELOPMENT RESEARCH, ECONOMETRIC ANALYSIS, ECONOMIC GROWTH, ECONOMIC IMPACT, ECONOMIC MECHANISM, ECONOMIC PERFORMANCE, ECONOMIC POLICIES, ECONOMIC REFORM, ECONOMIC REFORMS, ECONOMY LITERATURE, EMPIRICAL ANALYSIS, EMPIRICAL RESULTS, ENDOGENOUS VARIABLE, EQUILIBRIUM, ESTIMATED COEFFICIENTS, EXPLANATORY VARIABLES, EXTERNAL CONDITIONS, FINANCIAL LIBERALIZATION, FIXED EFFECTS, FOREIGN TRADE, GOVERNMENT REGULATIONS, GROWTH PERFORMANCE, GROWTH RATE, GROWTH RATES, GROWTH REGRESSIONS, HEALTH INSURANCE, HIGH UNEMPLOYMENT, ILO CONVENTIONS, INCOME, INCOME TRANSFER, INDEPENDENT VARIABLE, INDEPENDENT VARIABLES, INDIVIDUAL COUNTRIES, INSURANCE, INTERNATIONAL TRADE, JOB SECURITY, JOB SEPARATION, LABOR COSTS, LABOR DEMAND, LABOR FORCE, LABOR INSPECTION, LABOR LEGISLATION, LABOR MARKET, LABOR MARKET POLICIES, LABOR MARKETS, LABOR REALLOCATION, LAGGED VALUES, LEGISLATION, LIVING STANDARDS, MARKET DISTORTIONS, MARKET ISSUES, MIDDLE CLASS, MINIMUM WAGES, MONETARY POLICIES, NEGATIVE IMPACT, OPERATIONAL WORK, PER CAPITA INCOME, POLICY CHANGE, POLICY MEASURES, POLICY PACKAGES, POLICY RESEARCH, POLITICAL ECONOMY, POLITICAL MECHANISM, PUBLIC ENTERPRISES, PUBLIC SECTOR, PUBLIC WORKS, RANDOM EFFECTS, REAL WAGES, REFORM EFFORTS, REFORM PROGRAMS, REGIONAL AVERAGES, REGIONAL DISPARITIES, REGRESSION ANALYSIS, SAFETY NET, SAFETY NETS, SELECTION BIAS, SOCIAL SECURITY, STANDARD DEVIATION, STATE-OWNED ENTERPRISES, STRUCTURAL ADJUSTMENT, STRUCTURAL ADJUSTMENT PROGRAMS, TAXATION, TRADE LIBERALIZATION, TRANSITION ECONOMIES, UNEMPLOYMENT BENEFITS,
Online Access:	http://documents.worldbank.org/curated/en/2001/01/888057/labor-market-rigidity-success-economic-reforms-across-more-one-hundred-countries https://hdl.handle.net/10986/19737
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