Do labour market institutions and policies matter

1
Do labour market institutions and policies matter?

• Alena Nesporova
• Deputy Regional Director for Europe and Central
  Asia, ILO Geneva

2
Structure of presentation

• Major labour market challenges
• Changes in labour market institutions and
  policies
• Is employment protection legislation rigid?
• Impact of EPL on labour market outcomes
• Do labour market institutions and policies
  matter?
• Policy conclusions

3
Major labour market challenges

• Despite solid economic growth after 2000
  employment declining in half of the countries of
  the region
• High un- and/or underemployment
• Increasing incidence of flexible forms of
  employment
• High informal employment
• Significant labour market segmentation

4
Changes in labour market institutions and policies

• Liberalization of employment protection
  legislation (EPL)
• Protection through collective bargaining low due
  to low coverage by collective agreements
• Membership in trade unions varies by country but
  their members protection and policy making
  capacity is rather low in most countries

5
EPL strictness index (2007)
6
Changes in labour market institutions and
policies (cont.)

• Public employment services established but
  remained weak in some countries merged with
  other institutions and de facto disappeared or
  were decentralized
• Unemployment benefit schemes poor in terms of
  coverage, replacement rates and length of payment
• Increasing emphasis on activation of labour
  market policies but significant differences among
  countries in types of policy, their efficiency
  and access to them.
• In general spending on LMP in GDP significantly
  lower than in EU-15.

7
Changes in labour market institutions and
policies (cont.)

• Labour taxation as of wages declining but
  remains very high in many countries compared with
  EU-15
• In sum, weakening of workers protection at
  workplace vaguely compensated by protected move
  to new jobs through income support in
  unemployment, broader access to ALMP or better
  job mediation by PES.

8
Impact of EPL on LM outcomes in Central and
Eastern Europe

• Conclusions of bivariate analysis (late 90s)
• Stricter EPL contributes towards lower labour
  mobility
• Stricter EPL tends to be associated with higher
  temporary employment and longer average job
  tenure. It seems to increase insider/outside
  segmentation
• No impact of stricter EPL on unemployment
  (aggregate, youth, long-term)
• Conclusions of bivariate analysis (2003)
• EPL continues to have no impact on unemployment
  and has lost impact on labour dynamics.

9
Do labour market institutions and policies
matter?

• Finding from multivariate analysis (late 90s)
• No statistically significant impact of EPL on the
  aggregate, long-term and youth unemployment rates
  in CEE countries.
• Significant impact of EPL on employment and
  participation in CEE countries results indicate
  that more protection/better law enforcement could
  contribute towards better labour market outcomes.
  
• Labour market outcomes improved by collective
  bargaining and ALMPs.

10
Do labour market institutions and policies
matter?

• Finding from econometric analysis (2003)
• EPL strictness has no impact on the aggregate,
  long-term and youth unemployment rates
• Labour market institutions that matter ALMPs
  have positive and labour payroll taxes negative
  effect on economic activity and employment. ALMPs
  contribute towards reducing and high labour taxes
  towards increasing unemployment.
• Youth and long-term unemployment negatively
  correlated with trade union density while long
  payment of UB increases youth and long-term
  unemployment and reduces economic activity and
  employment.

11
Policy conclusions

• CEECA countries face a combination of high
  flexibility and low security, therefore the
  security side should be strengthened.
• In general no need to further liberalize EPL in
  most countries but to improve its enforcement.
• Collective bargaining at all levels needs
  strengthening through more effective mechanisms
  and capacity building of social partners.

12
Policy conclusions (cont.)

• Reduction of high payroll taxes and shifting of
  some social expenditure to general taxation
  should be considered.
• Need for further activation of labour market
  policy through capacity building of public
  employment service, widening of access to
  training and other ALMP but also decent income
  support during job search period combined with
  incentives for workers to take up jobs, and
  proper monitoring and evaluation of ALMP to
  improve their efficiency.
• Need to address the challenge of low employment
  intensity of growth and boost demand for labour
  through balanced macroeconomic policy combined
  with effective employment and labour market
  policies.