Labour Regulations R´ emi Bazillier Introduction
Lesson 4: Labour Regulations in Developing Countries
10 facts on labour market institutions (Freeman 2010) Early Works
Firm Performance and Development Master 2 Development Economics Univ. Paris 1 Pantheon-Sorbonne
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
R´emi Bazillier
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National Evidence: India and China Besley and Burgess (2004), QJE on India
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[email protected] http://remi.bazillier.free.fr
Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier
The traditional view on Labour Market Institutions by the World Bank “Labor market policies-minimum wages, job security regulations, and social security - are usually intended to raise welfare or reduce exploitation. But they actually work to raise the cost of labor in the formal sector and reduce labor demand, increase the supply of labor to the rural and urban informal sectors, and thus depress labor incomes where most of the poor are found” (World Bank, 1990, p.63) I
Reference: Freeman, R. B. (2010) : “Chapter 70 - Labor Regulations, Unions, and Social Protection in Developing Countries : Market Distortions or Efficient Institutions ?” in Handbooks in Economics, ed. by D. Rodrik and M. Rosenzweig, Elsevier, vol. 5 of Handbook of Development Economics, 4657 - 4702.
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
The underlying theoretical framework: Harris-Todaro
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
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Strong policy implications: I
World Bank and International Monetary Fund economists worried that labor institutions would undermine structural adjustment programs designed to cure balance of payments deficits or other economic ills I
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they stressed the need to shift resources from labor-intensive nontraded goods and services to capital-intensive traded goods sectors (→ Devaluation that would raise the price of tradeable goods compared to nontradeable goods and thus attract resources in the traded sector) As long as tradeable goods were capital intensive, this would also shift the income distribution toward capital The fear was that unions or other institutions that raised wages to preserve labor incomes would stop relative prices from moving in the desired direction
Labour market deregulation, part of the structural reforms package (Structural adjustments program) Large declines in real minimum wages and average earnings in many African and Latin American countries during the 1980s
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
But empirical evidence were weak..
Labour Regulations R´ emi Bazillier Introduction
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Freeman (1993) argued that extant evidence that labor institutions harmed economic development and stymied adjustments to macroeconomic problems per this were “sparse and unconvincing” Fallon and Lucas (1991, 1993) were the most solid evidence (on India and Zimbabwe) but were seen as “inconclusive” by Freeman (due to coincident factors) The literature has extended since then, but data availability is still a huge constraint Based on that, Freeman (2010) highlights 10 main findings, presenting a much measured view than in the World Bank’s 1990 proclamation
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
10 facts on labour market institutions (Freeman 2010)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
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Labor institutions vary greatly among developing countries but less than they vary among advanced countries. Collective bargaining is weaker in developing countries than in advanced countries while labor regulations are nominally similar.
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Freeman (2010)
Labour Regulations
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Compliance with regulations in the formal sector of many developing countries is sufficient that minimum wages appear to be binding. They produce spikes in the distribution of wages around minimum. Most studies find that minimum wages reduce employment sufficiently modestly so that minimums generally help the low paid. Contrary to Harris-Todaro type models, minimum wages induce spikes in the distribution of earnings in the informal sector in several countries, suggesting that minimum wages determine reservation wages of workers in those sectors. Wages and unemployment are negatively related across geographic areas, consistent with the wage curve and contrary to the Harris-Todaro model.
R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier
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Mandated benefits increase labor costs and reduce employment modestly while the costs of others are shifted largely to labor, with some variation among countries. Some mandated benefits increase labor costs and reduce employment modestly, while the costs of others are shifted largely to workers and thus presumably do not impact employment. Unions are associated with higher wages and nonwage shares of compensation and with lower turnover and less dispersion of pay. Estimates of the union effects on profits and productivity differ across countries.
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
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Cross-country regressions yield inconclusive results on the impact of labor regulations on growth, while studies of country adjustments to economic shocks, such as balance of payments problems, find no difference in the responses of countries by the strength of labor institutions. Labor institution can be critical when countries experience great change, as in China’s growth spurt and Argentina’s preservation of social stability and democracy after its 2001-2002 economic collapse. Cooperative labor relations tend to produce better economic outcomes In the 1990s-2000s, the informal sector’s share of employment increased or held steady in virtually all developing countries, including those with healthy growth and limited regulations. Even without deregulating the formal sector, an increasing proportion of workers in developing countries are working in largely unregulated markets.
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Freeman (2010)
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Fallon and Lucas (1991), “Impact of Changes in Job Security Regulations in India and Zimbabwe” World Bank Economic Review
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
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Increase in job security I
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New employment law in Zimbabwe after the independence in 1980 Industrial Disputes Act (1976) in India
Time-series data are used to assess the impact of these changes on employment in different industries
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Economic and Social context in India
Labour Regulations R´ emi Bazillier Introduction
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Relative low growth of indusrial employment in the 70s/80s despite huge investments Some limited liberalization at the beggining of the 80s I
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Higher growth of industrial production but decline in industrial employment after 1982
Growth of industrial wages leading to an increased dualism with agricultural wages Complex struture of minimum wages legislation, which vary from one state to the other, across industries and occupation Huge increase in union membership (+150% between 1966 and 1979)
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Economic and Social context in Zimbabwe
Labour Regulations R´ emi Bazillier
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Between the unilateral declaration of independence in 1964 to the 1974; 7.5% annual growth / 3.2% employment growth and 7.2% manufacturing employment growth After 1974: civil war, emigration of white people, limited materiel access under trade sanctions: recession and decline in manufacturing and agricultural employment After independence in 1980: I
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Rise in minimum wage in industry (27%) and in agriculture (43%) Unions have grown in size and coverage a brief boom in 1980-1981 (+9% of growth) followed by a stagnation in agriculture and industry Growth of population > Growth of employment → Concerns for unemployment (18% in 1982)
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Job Security Regulations
Labour Regulations R´ emi Bazillier
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Specificity in India and Zimbabwe: permission requirement Coverage: I
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India: all establishments over 300 employees (extended to +100 employees in 1982) Zimbabwe: Full coverage (except for temporary employment)
Implementation I
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India: very difficult to obtain a permission for plant closure Zimbabwe: long process to obtain a permission (one year) No permission is necessary when agreement between parties on the termination of employment Temporary employment was not an easy alternative (strong pressure from trade unions in India, wage has to be doubled in Zimbabwe)
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Empirical evidence: wages and hours of work
Labour Regulations R´ emi Bazillier Introduction
Wage and hours of work: I Estimation of a wage equation I I
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Increase in three industries in India No evidence that it leads to lower wages (employers were not able to offset the effects of new regulations) Role of trade unions
Hours of works: I
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Various results accross industries (a rise in 3, a drop in 3, no changes in the others) No evidence that substituting longer hours have been the response to legislation changes
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Empirical evidence: the demand for employees
Labour Regulations R´ emi Bazillier Introduction
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Industry labor demand equation: I
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Determinants of the logarithm of the number of employees: wage rate, logarithm of the output, logarithm of shifts workerd per employee, and a dummy for the imposition of the job security regulations In most estimates: positive impact of the lagged value of employment. It suggests that rapid ajustments are costly Interaction btw job security dummy and lag employment: NS Negative coefficient of the regulation dummy in 53 out of 64 industries
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
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According to Freeman (1993), these evidence are “at least inconclusive”
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Coincident factors (independence in Zimbabwe)
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Identification of the causal impact
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Botero, Djankov, La Porta, Lopez-De-Silanes, Schleifer (2004), Quarterly Journal of Economics
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
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Until 2004, no cross-country evidence due to the lack of reliable indexes of labour market institutions This paper proposes a new approach for mesuring labour laws: I
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data on employment, collective relations and social security law in 85 countries and coding to measure worker protection
Three major theories of institutional choice: I I I
The Efficiency Theory The Political Power Theory The Legal Theory
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Why do governments intervene in the labour market?
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
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Free labour markets are imperfect I
Rents in the employment relationship and employers abuse workers to extract these rents, leading to both unfairness and inefficiency
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics
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Employers discriminate against disadvantaged groups They underpay workers who are immobile Invest in firm-specific capital Fire workers who then need to be supported by the state (...)
Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier
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Four forms of labour market regulations: I
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Governments forbid discrimination in the labor market ˇ in the and endow the workers with some S ¸ basic rightsT on-going employment relationships, such as maternity leaves or the minimum wage Governments regulate employment relationships by, for example, restricting the range of feasible contracts and raising the costs of both laying off workers and increasing hours of work In response to the power of employers against workers, governments empower labor unions to represent workers collectively, and protect particular union strategies in negotiations with employers Governments themselves provide social insurance against unemployment, old age, disability, sickness and health, or death
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Efficiency
Labour Regulations R´ emi Bazillier Introduction
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North (1981): choice of institutions is dictated primarily by efficiency considerations I
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This approach broadly implies that countries choose a combination of labor market interventions to maximize social welfare → curing market failures
Two implications: I
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First, if government intervention in the labor market in the form of worker protection is efficient, then it should not have large adverse consequences, such as unemployment, withdrawal of people from the labor force, and the growth of the unofficial economy. Second, if efficiency is the correct model, political factors such as the power of the left or constraints on government would not shape regulatory choices.
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Political Power
Labour Regulations R´ emi Bazillier Introduction
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Institutions are designed to transfer resources from those out of political power to those in power, as well as to entrench those in political power at the helm (Marx 1872, Olson 1993) I
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These theories imply that labor regulations are more protective of workers when leftist governments are in power Such protection can restore efficiency if in a free market workers are “abused”, or in lower efficiency if government intervention leads to expropriation of capital by labor
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction
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Two varieties of political power theories: 1. The principal mode of political decision making is elections: regulations protecting workers (or at least employed workers) are introduced by socialist, social-democratic, and more generally leftist governments to benefit their political constituencies 2. Laws are shaped by the influence of interest groups: labor regulations respond to the pressure from trade unions, and should therefore be more extensive when the unions are more powerful, regardless of which government is in charge
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Legal theory
Labour Regulations R´ emi Bazillier Introduction
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Two very distinct legal traditions in Western Europe: common law and civil law I
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Because most countries in the world received their basic legal structures in this involuntary way, these structures are exogenous to their economies.
The legal theory holds that countries in different legal traditions utilize different institutional technologies for social control of business I
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Common law countries tend to rely more on markets and contracts Civil law: regulation
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Botero et al. (2004)
Measures of Labour Regulation
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works
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Three areas: I I I
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Employment Laws collective relations laws social security laws
Formal legal rules
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Botero et al. (2004)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Source: Botero et al. (2004)
Research perspectives: the Better Work Program
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Example of employment laws: I
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“it reflects the incremental cost to the employer of deviating from a hypothetical rigid contract, in which the conditions of a job are specified and a worker cannot be fired” Strictness of protection against alternative employment contracts (part-time labour or temporary contracts): measure whether part-time workers are exempt from mandatory benefits of full-time workers and whether it is easier or less costly to terminate part-time workers than full-time workers The cost of increasing working hours: they assume that the hypothetical firm in each country has each employee working at 1758 hours per year initially (Denmark’s maximum) and it wants to increase these numbers by 660 hours (to 2418 hours: Kenya’s maximum) The economic cost of firing workers: they construct a scenario where the standardized firm with 250 workers fires 50 of them: 25 for redundancy and 25 without cause
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Testing the theories
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Botero et al. (2004)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Botero et al. (2004)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier
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No evidence that employment laws or collective relations laws vary with the level of economic development I
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→ This result is inconsistent with the implication of the efficiency hypothesis that rich countries should regulate less because they have fewer market failures
Legal origin matters I
Higher regulations in civil laws countries → legal theories
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
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Politics matter I
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Countries with longer histories of leftist or centrist governments have heavier regulation of labour markets Higher union density is also associated with stronger labour laws → political power theories
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Effects on outcome
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Botero et al. (2004)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Botero et al. (2004)
Labour Regulations R´ emi Bazillier
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“Some evidence” that: I
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Protective collective relations laws (but not others) are associated with a larger unofficial economy More protective employment,collective relations, and social security laws lead to lower male (but not female) participation in the labor force More protective employment laws lead to higher unemployment, especially of the young More generous social security systems are associated with higher relative wages of privileged workers
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Legal origins as instrumental variables: similar results
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Causal impact?
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
In summary
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
“All of this evidence does not provide much support for the efficiency theory, namely that labor regulations cure market failures, although of course it is possible that the adverse outcomes we measure are unavoidable to alleviate capitalist abuse of workers. The results are consistent with the view that legal origins shape regulatory styles, and that such dependence has adverse consequences for at least some measures of efficiency.”
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Indexes of LMI
Labour Regulations R´ emi Bazillier
I
In 2004, The World Bank starts publishing the Doing Business Report I I I
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175 countries, 10 criteria One sub-index on labour regulation The underlying theoretical framework is the one of Botero et al. (2004) Most empirical studies on LMI in developing countries have used this index
But his index has been criticized : I
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Berg and Cazes (2007), World Bank (2008, 2011, 2013), Alekzsynka and Cazes (2014) Hypothesis: labour market institutions are a cost De Jure index and not de facto It does not take into account complementarities between different LMI dimensions (Berg and Cazes 2007)
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction
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The World Bank takes into account these critics: I
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The index has been revised and it is not anymore included in the agregated index of Doing Business No policy recommendations are made, based in this index
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But the index is still used widely
I
Other LMI indexes often include this index as one dimension
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Aleksynska and Cazes (2014)
A low correlation between different indexes
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Aleksynska and Cazes (2014)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
In summary
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works
I
“It suggests that such indicators should be based on more balanced conceptual frameworks and robust methodological choices. This paper also showed that there is room for improving existing indicators.” (Aleksynska and Cazes 2014)
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Market Institutions or Labour Standards?
Labour Regulations R´ emi Bazillier
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These papers focus on labour market institutions I
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“the set of rules, practices and policies related to the labour markets and its participants (formal or informal, written or unwritten, universal or particular by the location or region), all of which affect how the labour market works” (ILO, International Training Centre). Pissarides (2001):
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics
1. Employment protection legislation; 2. The presence and size of a minimum wage; 3. Unemployment benefit, measured by both its generosity and its duration; 4. Union density and coverage, measured, respectively, by the fraction of employees who are union members and those who are covered by union agreements; and 5. The degree of centralization/coordination of wage bargaining.
Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Core Labour Standards
Labour Regulations R´ emi Bazillier Introduction
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The 1998 Declaration on Fundamental Principles and Rights at Work sets a list of core labour standards
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These core labor standards represent the fundamental rights of workers, which can be applied all over the world irrespective of the stage of development. Core Labour Standards:
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Freedom of Association and the right to collective bargaining (convention 87 and 98) The elimination of all forms of forced and compulsory labour (convention 29 and 105) The effective abolition of child labour (convention 138 and 182) The elimination of discrimination in respect of employment and occupation (convention 100 and 111)
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
International Labour Standards
Labour Regulations R´ emi Bazillier Introduction
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The International Labour Organisation (ILO) is a tripartite organisation where each State is represented by its government, trade unions and employer representatives. Labour Standards are global principles and rules governing work and professional conditions I
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They are multifaceted and may vary from one country to another depending on the stage of development, political, social and cultural conditions or institutions ILO conventions: legally binding international treaties that may be ratified by member states (189 conventions today)
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Bazillier (2008), “Core Labor Standards and Development: Impact on Long-Term Income”, World Development I
Debate in the 90s on the link btw labour standards and international trade (social clause). But limitations: I
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Many developing countries are completely against any kind of links between international trade and labor standards, for fear of a “hidden protectionism” Trade sanctions can be counter-productive because they harm the people they are designed to help (Brown, 2000; Brown, Deardorff, Stern, 1996; Maskus, 997; Srinivasan, 2004) It is often the case that countries with very weak labor standards are not integrated into international trading. Moreover, the export sectors have very often better standards than the others.
Focus on the link btw labor standards and development
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction
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First step: Building of an index of effective enforcement of core labour standards I
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Use of Multiple correspondence analysis to build an agregated index MCA is a mathematical technique allowing an analysis of different discrete variables by projecting on different axis the common information contained into these different variables.
Second step: Effects on long-term per capita income
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Bazillier (2008)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
I
Empirical specification derived from the Mankiw, Romer and Weil (1992) model:
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence
ln yi = γ0 +γ1 ln(sK )+γ2 ln ni + g + δ+γ3 ln(h∗ )+γ4 ln(ls ∗ )+ (1)
Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
The main challenge: endogeneity
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works
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Typical argument: labour standards are endogenous to economic development Improvement of labour standards is a consequence and not a cause of development Instrumental strategy to tackle this issue
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Instruments I
Democracy: I
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Literature in political sciences showing a causal relation between democracy and Human Rights Literature in psychology on the relation between perception of Human Rights and democracy No consensus on the link between demoocracy and economic growth or development
Non-elites participation: I
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Relations between rights and norms and the way to construct norms A norm needs a social consensus that placed the right in the hand of a group of people (the corporate actor in the wording of Coleman). If we assume that the individuals who will benefit from an improvement in labor standards are not part of the elite, it is crucial that the “nonelites” can participate in the democratic process, being able to access institutional structures for political expression, or having the opportunity to attain executive office. This is what Pareto (1916) called the rotating of the elite.
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Bazillier (2008)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Bazillier (2008)
Labour Regulations R´ emi Bazillier Introduction
I
To give a quantitative assessment of this result, a one standard deviation change in the log variable of labor standards (0.88) will increase the GDP per capita by 44% (0.88 * 0.50) I
I
Compared to 25% for a one standard deviation change in investment and 42% for a one standard deviation change in education But it is a long process: change of the structure of the economy, especially for labour market, new international specialization...
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Besley and Burgess (2004), “Can Labor Regulation Hinder Economic Performance? Evidence from India”, Quarterly Journal of Economics
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
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Paper presented in the course “Empirical Devt. Econ.” (see presentation here: goo.gl/P1dnZT) Here, only a short summary of main results I
I
Diff-in-Diff approach exploiting the variation of labor regulations among Indian States Coding of the legislation based on the reading of all state level amendments to the Industrial Disputes Act of 1947 (113 amendments coded as neutral- pro-worker or pro-employer)
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier
I
Labor regulations may affect economic performance through two channels: I
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A relative price effect: ajustments costs → firms in the registered sector may substitute away from labor towards other labor saving inputs (capital). ↑ marginal cost of production and thus ↓ optimal output level An expropriation effect: increase in workers’ bargaining power and increase the importance of hold-up problems in investment ↓ investments Remark: no productivity effects are taken into account here
Effets on workers are ambiguous I
↑ labour costs → lower wages or lower employment
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Main results
Labour Regulations R´ emi Bazillier
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Regulating in a pro-worker direction was associated wit lower level of investment, employment, productivity, and ouput in registered manufacturing
Introduction
It also increased informal sector activity Endogeneity
Early Works
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States with larger vested interests in manufacturing at the beginning of the period may have experienced greater pressure to pass pro-worker amendments Use the average level of union membership before 1977 and match states based on unionizaton Instrumental variable: union membership variable interacted with a dummy equals to one after 1977 (persistent shift in political control following the the declaration of a state of emergency by Indira Ghandi) Other instrument: patterns of land tenure (correlated with contemporary patterns of political development)
10 facts on labour market institutions (Freeman 2010)
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Source: Besley and Burgess (2004)
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Besley and Burgess (2004)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Besley and Burgess (2004)
Limitations
Labour Regulations R´ emi Bazillier Introduction
I
Results are not robust to the inclusion of state specific time trends I
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Are these effects due to labor regulations per se or the consequences of a poor climate of labor relations?
Are pro-workers and pro-employers regulations have symetrical effects?
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Are all “pro-workers reforms” likely to have homogenous effects?
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What effects on firms?
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Besley and Burgess (2004)
Effects on Poverty
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Besley and Burgess (2004)
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Mayneris, Poncet, Zhang (2016), “Improving or Disappearing: Firm-Level adjustments to minimum wage in China”
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works
I
Huge academic debate on the economic effects of minimum wage I
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Dube et al. (2010) or Allegretto et al. (2011) find only modest effect if any others emphasizing the negative effect of minimum wage for some specific employment types such as low-skilled and young workers (see Neumark et al., 2014, for example)
Focus on the evolution of firm-level performance after the reform of minimum wage
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations R´ emi Bazillier Introduction
I
Data from the annual surveys conducted by the National Bureau of Statistics (NBS) in China I
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These firm-level surveys include balance-sheet data for all industrial State-owned and non-State firms with sales over 5 million Yuan 20% of all industrial firms, employ 71% of the industrial workforce, generate 91% of output and 98% of exports
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Minimum wage in China
Labour Regulations R´ emi Bazillier Introduction
I
Ratification of ILO convention on minimum wage in 1984
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However, the government did not impose any obligations in terms of wage standards
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Some provinces started experimenting with minimum wages at the end of the 1980s (Guangdong and Shenzen)
I
1993: National minimum wage regulation, officially added to the Chinese labour law in 1994
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Minimum wage in China
Labour Regulations R´ emi Bazillier Introduction
I
As Chinese provinces have very different living standards, China does not have one national minimum wage; minimum wages are rather established following a decision process involving both national and local authorities I
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Each province, municipality, autonomous region, and even district can set its own minimum wage according to local conditions and based on national guidelines Typically, following the national requirements, provincial governments set out multiple minimum-wage classes for the region as a whole, and each city and county in the region chooses the appropriate minimum-wage level based on local economic conditions and living standards
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
The 2004 reform of minimum wage
Labour Regulations R´ emi Bazillier
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The Chinese authorities, concerned by the growing inequality within and across cities that accompanied the rapid growth in the country, thus set out new minimum-wage rules in March 2004 One of the explicit aims of the Reform was to increase living standards, in particular in cities where these were the lowest The reform: I I
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More workers were covered by the minimium wage Minimum wages were adjusted more frequently (at least once every two years) an hourly minimum wage was created for part-time workers Non-enforcement penalties rose from 20-100% of the wage owed before the Reform to 100-500% post-Reform.
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Minimum wages rose sharply in China after the 2004 Reform
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Firm-level exposure to minimum-wage growth and compliance with the minimum wage
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
I
Exposed firms: Those in which the average wage at t is below the future local minimum wage at t + 2 I
These firms are obliged to raise their wages in order to comply with the new city-level minimum wage.
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Exposure to minimum-wage growth and compliance with the minimum wage rise following the 2004 reform
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Chinese firms appear more constrained by minimum wages following the 2004 Reform
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Mayneris et al. (2016)
Firm-level average wages clearly rose faster between 2003 and 2005, i.e. following the Reform, especially in the lowest deciles.
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
the relationship between initial firm-level average wages and firm-level wage growth changed after the 2004 minimum wage Reform
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations
Empirical Strategy
R´ emi Bazillier Introduction
I
10 facts on labour market institutions (Freeman 2010)
Diff-in-diff approach: compare the relative growth of “exposed” and “non-exposed” firms within cities and sectors before and after the 2004 Reform I
Early Works Fallon and Lucas (1991), WBER
The Reform period is defined as the two-year window 2003-05, centered around 2004, with the 2001-2003 period being used as the pre-Reform (and thus “pre-treatment”) period
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
f ,c,k ∆Yt,t+2
=
Research αExposedtf +βExposedtf xReformt +Ztf +µc,k +νc,t +κk,t +fc,k,t perspectives: the
(2)
Better Work Program
Endogeneity issues
Labour Regulations R´ emi Bazillier Introduction
I
Exposed firms might have particular characteristics in terms of their size, productivity and of course wages (they are by definition the lowest-wage firms in their city) that also help determine their subsequent performance growth I
Ztf
Control for a set of firm-lvel controls including dummies for the firm-level decile in terms of initial employment, wages and labor productivity, as well as dummies for State-owned firms, foreign firms and exporting firms
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Endogeneity issues
Labour Regulations R´ emi Bazillier Introduction
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local authorities set the minimum wage depending on the local business cycle I I I
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This is explicitly encouraged by the national guidelines Inclusion of a number of fixed effects: City-sector fixed effects (comparison of firms form the same city-sector, accounting for city-sector trends) City-year fixed effects to capture any time-varying shock affecting both the minimum-wage decisions made by local authorities and firm growth in the city Sector-year fixed effects to control for shocks affecting all Chinese firms in a given sector in a given period
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Endogeneity issues
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
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It could be the case that local authorities set minimum wages based on the business cycles specifically faced by low-wage firms I
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The dummies for firm-level deciles in the terms if initial employment, wages and labour productivity partly address this issue These account for different dynamics over the two periods for firms from different size, wage and productivity classes
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Descriptive Statistics
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Results
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program Source: Mayneris et al. (2016)
Labour Regulations R´ emi Bazillier
I
Higher average wages in surviving exposed firms I
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the growth rate of average wages in exposed firms rose by 7.8 percentage points as compared to non-exposed firms following the Reform. As such, the 2004 Reform succeeded in significantly increasing wages for workers in low-wage firms. This is further proof that the 2004 Reform was binding and put more wage pressure on low-wage firms than before.
No significant effects on jobs I
No significant change in the the employment growth gap between surviving exposed and surviving non-exposed firms following the Reform. Exposed firms do not seem then to react to higher minimum wages by hiring less or firing more workers than do other firms.
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations
I
An increase in labour productivity growth (value added per worker) I
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Higher total factor productivity I
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While, all else equal, the productivity growth of exposed firms was not different from that of non-exposed firms before the 2004 Reform, it is 3.1 percentage points higher after the Reform. These confrm that firms exposed to higher minimum wages experienced greater productivity gains once the new minimum wage applied. The gap in productivity growth between exposed and non exposed firms is 25 percentage points during the Reform period Hence, the productivity-growth premium attributed to the Reform for exposed firms is 12.5% of the initial productivity-growth gap between exposed and non-exposed firms.
No effect on firm profitability
R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
An alternative definition of exposure
Labour Regulations R´ emi Bazillier Introduction
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I
The “exposed” dummy is a noisy measure of exposure to the minimum-wage hike, since some fraction of employees will not be exposed to higher minimum wages in so-called “exposed” firms and vice versa for “non-exposed” firms Alternative definitions
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics
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A continuous indicator of exposure: the distance between the current firm-level average wage and the future local minimum wage Split of “exposed firms” between “highly-exposed firms” (initial average wages below the median wage in exposed firms in the city) and “less-exposed firms” Focus on the the bottom tier of non-exposed firms (“just avove the threshold firms”)
Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Results are robust to the use of a continuous variable of exposure
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Results are robust to the use of alternative cut-offs for the exposure dummy
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Identification I
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I I
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The difference-in-difference approach assumes that, all else equal, in the absence of the 2004 minimum wage Reform, the gap between exposed and non-exposed firms in terms of performance growth would have remained the same (a common-trend assumption). This cannot be tested directly but one can check whether exposed and non-exposed firms had already started to diverge in some dimensions pre-Reform They add another 1999-2001 wave to the estimation sample (→ no change) It suggests that the relative change between 2001-03 and 2003-05 does not reflect a pre-existing trend → the use of double differences is validated We may still worry that the minimum-wage hikes post-Reform reflect local shocks that occurred at the same time as the Reform and are particular to very low wage firms (→ IV)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Labour Regulations
IV
R´ emi Bazillier
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The institutional features of the minimum-wage rules to instrument the “Exposed” dummy (assuming that the national guidelines were not designed to reflect particular local conditions) The instrument relies on the “40% rule” that minimum wages must be at least 40% of local average wage The predictor of the local minimum wage could indeed be this lower bound However, local average wages are themselves directly affected by minimum wages and partly reflect the potential shocks affecting low-wage firms that we wish to eliminate → Prediction of local average wages based on the city sectoral composition and the past wage growth observed for each sector in the rest of China
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
First stage
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Second stage
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
The productivity channel
Labour Regulations R´ emi Bazillier Introduction
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The productivity channel implies that firms that were unable to obtain the required productivity improvements would exit the market, producing a negative effect of the 2004 Reform on firm survival probability. The cost shock could trigger the adoption of better management or organizational practices (inventory reduction as an indicator of a change in management practices aimed at cost reduction) Part of the adjustment may also operate through physical-capital investment any efficiency-promoting investments made following the minimum-wage rise should reduce cash balances (because of financial constraints)
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
The productivity channel
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Why exposed firms did not make these investments before if they are profitable?
Labour Regulations R´ emi Bazillier Introduction
I
Duflo et al. (2011), Bloom et al. (2013) and Atkin et al. (2015) describe multiple barriers to technology adoption in developing countries I
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utility cost, incomplete information, present bias, time constraints, and the procrastination or misalignment of incentives within firms might all prevent or delay the adoption of apparently profitable innovations This could be all the more true that the availability of cheap labor provides little incentive to pay adoption costs the substantially higher labor costs from 2004 minimum-wage Reform may have increased the value of adopting new and better technologies or management practices.
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Why the low-productivity firms that improve after the minimum wage Reform were not forced out of the market by the entry or expansion of more productive firms?
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
I
I
Same question arises in Bloom et al. (2013) on Indian firms (see chapter 1) (family management and no decentralization of decisions) In the Chinese case, political connections with leaders of the Communist Party might also partly explain the situation, as emphasized by Khandelwal et al. (2013) in the context of export-license allocation before China’s WTO entry
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Alternative explanations
Labour Regulations R´ emi Bazillier
I
We now ask whether there are alternative explanations of the zero employment but positive firm-level productivity effects we attribute to minimum wages. I
The role of migrants I
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It is well-known that migrant workers, who are often illegal in the cities where they live, work more hours, receive lower hourly wages, and are less well covered by welfare and fringe benefits firms can cut costs by hiring more of them If firms do not declare their (potentially illegal) migrant workers in the National Business Surveys, the substitution should produce a negative effect of minimum wages on firm-level employment → It is not what is found If firms declare their migrant workers, employment in exposed firms will not change. But as migrants work more hours, total hours in exposed firms should rise
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
no difference in the relative change in employment and productivity between exposed and non-exposed firms following the Reform according to local migration intensity
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
Pricing strategy
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
I
A last potential explanation is that firms adjusted to the 2004 Reform by increasing output prices I
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If the price-elasticity of demand is sufficiently low, firms can then raise wages and not change their employment Prices are not known. But if these effects are at work, they should be heterogeneous across sectors (depending on the level of competition in the sector)
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
no difference in the impact of the 2004 Reform between high- and low-competition industries
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Mayneris et al. (2016)
In summary..
Labour Regulations R´ emi Bazillier Introduction
I
Following the 2004 reform, firm-level survival probability falls, and both wages and productivity significantly rise among the firms that were more exposed to the Reform, allowing surviving firms to maintain their employment and profits.
10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
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Overall, the minimum-wage Reform in China has produced a cleansing effect Similarities with the Porter hypothesis for environmental regulations
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Outline
Labour Regulations R´ emi Bazillier
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China Research perspectives: the Better Work Program
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
The Better Work Program
Labour Regulations R´ emi Bazillier
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A joint initiative of the International Labour Organization (ILO) and the International Finance Corporation (IFC), a member of the World Bank Group, launched in 2007 ILO’s Better Factories Cambodia project: I
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Originally, the project was linked to an innovative trade agreement with the United States that provided market access in return for improving working conditions in the garment sector After the expiration of the trade agreement in 2004, the Cambodian Government, together with unions and employers, requested that the ILO set up a sustainability strategy to turn Better Factories Cambodia into a self-financing local institution. The ILO teamed up with IFC to design and implement this strategy.
Today, Better Work is active in Cambodia, Haiti, Jordan, Vietnam, Indonesia, Nicaragua and Bangladesh
Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
The productivity channel I
Early evidence from Better Work Vietnam tends to show that improved conditions in factories are linked to higher levels of worker productivity
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
I
Better working conditions may have a positive impact on profitability (+25% 4 years after)
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Source: Better Work (2016)
Issues and Challenges
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010)
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What causal impact I I I
An obvious selection bias Reverse causality Omitted variables (international pressure)
Early Works Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE
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Which transmission channel?
Indexes of LMI: critics Bazillier (2008), WD
I I I I
Workers efforts and motivation Investments Higher exit rate Demand from consumers (...)?
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
Promising research perspectives
Labour Regulations R´ emi Bazillier Introduction 10 facts on labour market institutions (Freeman 2010) Early Works
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More and more data are available (enterprise surveys, firm-level data, labour force surveys) in developing countries
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Specific programmes (Better Work)
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Growing concerns from the international community (international organizations, consumers...)
Fallon and Lucas (1991), WBER
Cross-Country Evidence Botero et al. (2004), QJE Indexes of LMI: critics Bazillier (2008), WD
National Evidence: India and China Besley and Burgess (2004), QJE on India Mayneris et al. (2016) on China
Research perspectives: the Better Work Program
