亚洲开发银行-结构转型背景下的劳动力市场规制（英文版）-2018.04-56页

Summary of "Labor Market Regulations in the Context of Structural Transformation"

Core Content

This paper explores the impact of labor market regulations on structural transformation in developing countries, focusing on how these regulations influence the allocation of resources between formal and informal sectors. It constructs a theoretical model that incorporates risk-averse workers, an informal sector, and firm-level job destruction, and analyzes the effects of various labor market policies.

Main Points

I. Introduction

• Structural Transformation: The process by which resources move from less productive to more productive activities, either intersectorally or intrasectorally.
• Focus: The paper emphasizes intrasectoral reallocation, specifically the shift from informal to formal employment.
• Key Factors: Risk aversion, lack of insurance markets, and regulatory burdens are central to understanding the effects of labor market regulations.
• Objective: To develop an analytical framework for evaluating labor market regulations and their impact on structural transformation and worker welfare.

II. Related Literature

• Fugazza and Jacques (2004): Informal sector firms evade taxes and regulations. Workers with lower subjective costs choose informal jobs, and increased enforcement reduces informality.
• Zenou (2008): Formal sector has search frictions and entry costs, while informal sector has competitive wages. Informality is influenced by the cost of compliance and productivity.
• de Paula and Scheinkman (2007): Firms with higher productivity are more likely to be in the formal sector, and workers are homogeneous. Tighter enforcement reduces informality.
• Meghir, Narita, and Robin (2015): Formal firms pay taxes and minimum wages, and workers are eligible for unemployment insurance. Tighter enforcement increases formal employment and output.
• Chatterjee and Kanbur (2014): Empirical study on informality in India using firm-level data shows that stricter regulations increase informality.

III. Theoretical Model

• Two Sectors: Formal (sophisticated production function) and informal (simpler production function).
• Workers: Risk averse, with utility function $U(c)$, where $U''(c) < 0$.
• Entrepreneurs: Heterogeneous in ability, with a unit mass. They can choose to set up firms in either sector.
• Formal Sector: Match-specific productivity, firms face fixed costs $F$ (including regulatory costs), and have to set wages and firing thresholds.
• Informal Sector: Firms use simpler technology with diminishing returns. Wages are set competitively.

IV. Planner's Problem

• The planner aims to maximize aggregate output and employment in the formal sector.
• The decentralized outcome is inefficient due to risk aversion and missing insurance markets.
• The model shows that labor market regulations can have both positive and negative effects depending on their nature.

V. Labor Market Regulations

A. Severance Payments/Unemployment Insurance

• Provide insurance to risk-averse workers, improving efficiency and promoting structural transformation.
• Severance payments or unemployment insurance funded by a layoff tax can increase formal employment and output.
• Noncompliance is a concern, especially during economic crises.
• State-provided unemployment insurance may be ineffective due to weak state capacity and leakage.

B. Noncompliance and State Capacity

• Weak state capacity leads to inefficiencies in policy implementation.
• Leakage from unemployment insurance programs reduces their effectiveness.

C. Administrative Burden of Firing

• Firing restrictions increase the administrative burden on firms, reducing their incentive to fire low-productivity workers.
• This leads to a higher share of informal employment and lower aggregate output.

D. Increase in General Regulatory Burden

• Higher regulatory costs reduce the size of the formal sector and aggregate output.
• It also increases informality by making formal employment less attractive.

E. Minimum Wage Regulation

• A binding minimum wage in the formal sector reduces the size of the formal sector and hinders structural transformation.
• Initially, it may increase output and worker welfare, but the distortionary effect on firm profits dominates, leading to a decrease in net output.

VI. Empirical Evidence

• Data Sources: Cross-country data from ILO's KILM database and the Centre for Business Research at the University of Cambridge.
• Key Findings:
  • Stricter dismissal regulations and higher minimum wages increase informality.
  • More generous severance payments do not significantly increase informality.
• These findings align with the theoretical results, reinforcing the model's validity.

Key Information

• Risk Aversion: Plays a critical role in the inefficiency of the decentralized labor market outcome.
• Informal Sector: Often arises due to regulatory burden and the unprofitability of modern technology for low-ability entrepreneurs.
• Labor Market Policies:
  • Severance Payments/Unemployment Insurance: Efficiency-enhancing and support structural transformation.
  • Firing Restrictions: Impede structural transformation by increasing informality.
  • Minimum Wage: May have mixed effects, initially increasing output but eventually reducing it.
• State Capacity: Affects the effectiveness of unemployment insurance programs.
• Empirical Consistency: The theoretical model is supported by cross-country data showing the relationship between labor regulations and informality.

Conclusion

• Labor market regulations have significant implications for structural transformation.
• Insurance provisions (severance payments, unemployment insurance) can enhance efficiency and promote formal employment.
• Firing restrictions and minimum wage regulations may hinder structural transformation.
• The effectiveness of labor market policies depends on the presence of insurance markets and the strength of state capacity.

References

• Fugazza, C., & Jacques, R. (2004)
• Zenou, Y. (2008)
• de Paula, J., & Scheinkman, J. (2007)
• Meghir, C., Narita, Y., & Robin, J.-M. (2015)
• Chatterjee, S., & Kanbur, R. (2014)

Notes

• The paper uses a static model with endogenous job destruction.
• It assumes that workers cannot re-enter the informal sector after being fired.
• The model incorporates both technological and regulatory aspects of informality.