module1introductiontolabourmarketslabourmarketinstitutionfinal-100419025612-phpapp01.pdf

Module 1_Introduction to Labour Markets & Labour market institution
International
Training
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of
ILO,
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Italy.
Course
on
International
Trade
and
Labour
Markets
Introduction to labour markets &
Introduction to labour markets &
labour market institution
labour market institution

International
Training
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ILO,
Turin,
Italy.
Course
on
International
Trade
and
Labour
Markets
Objective
Objective
 To better understand conceptual issues about
labour market and labour market institution
 To highlight the concepts and history of labour
protection and labour market institutions in the
context of globalization
 To present the current debates on labour market
institutions and their impacts on employment
and economic growth
 To understand the concept of “flexicurity”

International
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Course
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Labour
Markets
Outline
Outline
 Labour and labour markets
– The history of labour and labour protection
– ILO in labour history
– Labour economic & classical definition
 The labour market institutions
– Examples
– Labour market indicators
 Debates on labour market rigidity and employment
– The reason of the high-unemployment?
– Is labour market rigidity really to blame?
– Flexicurity: definition, policy, approaches of the EU

International
Training
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Course
on
International
Trade
and
Labour
Markets
Part 1
Part 1
Labour and labour market
Labour and labour market
Labour history and labour movement
Labour history and labour movement
International Labour Organization
International Labour Organization
Labour economy and labour market
Labour economy and labour market

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The history of labour protection
 The history of labour is predominantly about the
development of labour movements and the working
class.
 There has been changes in the concept of labour
starting from the Industrial Revolution of the 18th
century: Division of Labour, Mass production and
Fordism in Western Europe and U.S.
 Labour movement- claims for the rights of
workers: Building of workers’ unions and demanding
better wages and working conditions.

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 During the 20th century, labour protection
policies has been applied in many countries with
the aims of economic development and social
welfare.
 “Consensus between workers and employers
about the protection of workers rights was
made and governments also actively involved in
the regulation of the labour protection
policies after second world war with Keynesian
view.”
Global Labour Flexibility, by Guy standing,
Chapter 3, the Pursuit of flexibility

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Course
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ILO in the history of labour
ILO in the history of labour
 The International Labour Organization was created
in 1919, by the Treaty of Versailles that ended World
War I.
 ILO establishment was founded upon the belief that
universal and lasting peace can be accomplished only if
it is based on social justice. The ILO later became
incorporated into the United Nations.
 The ILO is the principal international organization that
promotes International Labour Standards, conventions,
treaties and recommendations designed to eliminate
unjust and inhumane labour practices.
Rules of Game, ILO, revised edition 2009

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ILO mission and objectives
ILO mission and objectives
 “The primary goal of the ILO today is to promote
opportunities for women and men to obtain decent and
productive work, in conditions of freedom, equity,
security and human dignity.”
Juan Somavia, ILO Director-General
 The four strategic objectives of ILO
●
Promote and realize standards and fundamental principles
and rights at work,
●
Create greater opportunities for women and men to
secure decent employment and income,
●
Enhance the coverage and effectiveness of social
protection for all,
●
Strengthen tripartism and social dialogue

International
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Course
on
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Trade
and
Labour
Markets
Labour economic & labour markets

International
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Course
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Labour
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Labour economic
Labour economic
 “Labour economics looks at the suppliers of labour
services (workers), the demanders of labor services
(employers), and attempts to understand the
functioning of labour markets and the resulting
pattern of wages, employment, and income.”
(Handbook of Labor Economics, Ashenfelter and Card.
1999)
 There are micro and macro dimensions in Labour
Economics. In macro, the focus is on inflation
aggregated unemployment debate. Vise versa, micro
focuses on role of individuals and firms in the labour
market.

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 Classical labour economic studies about the
exchange of labour on markets. This purely-
market based features of labour is centered in
the “merchandise” of commodities.
 In Labour Market, what is been exchanged is
workers’ ability to offer services and not workers
themselves .
 Labour is not a commodity because of the social
and psychological aspect of labour.
Labour economic distinctions

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The definition of labour market
The definition of labour market
with
with neo-classical economics
neo-classical economics view
view
 The classical economics approach to the Labour
market;
“Labour is a means of production, ‘factor of
production’ (with capital and land).”
 If wages are fully flexible, labour market equilibrium
will be attained (i.e. quantity of supply and demand of
labour would be matched). Hence there will be the
clearing of market effect.
(Graphically explained in the next slide)

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The labour market assumption of
The labour market assumption of
neo-classical economics
neo-classical economics
 Assumptions
(in simple supply/demand
model):
– Demand curve in downward
sloping, supply curve in
upward, equlibrium (wage) at
intersection
– income-leisure trade off
– Indifference curves
– Perfect competition (perfect,
symmetric information, no
transaction costs)
– Homogeneous workers
wages
Quantity
supply
demand
Equilibrium
of labour
0

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The ILO definition of labour
The ILO definition of labour
 ILO Constitution and the Philadelphia
Declaration of 1944
“Labour is not a commodity.”
Workers should not be subject to ‘market
forces’ in the same way as oranges and
lemons, and they have the rights and need for
security and social protection.
http://www.ilo.org/ilolex/english/iloconst.htm

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The critics against
The critics against neo-classical
neo-classical
economics view
economics view
 There are always unemployment which cannot be
explained by the classical theory.
 Labour markets function differently from the markets
for commodity. And labour demand and supply do not
respond in the same way as commodity market does
for the price changes.

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The critics against
The critics against neo-classical
neo-classical
economics view
economics view
 Newer Labour economics tried to figure out the
constant problems in labour markets and their
variables.
 Labour markets failures that are often ignored by
traditional/classical approach of labour economists.
 Such as, information asymmetries, heterogeneous
workers, transaction costs, monopoly (only one seller),
and monopsony (only one buyer), oligopoly, oligopsony
(a limited number of the above)

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Unemployment rate map
Unemployment rate map
Unemployment rate by country, from figures at CIA world factbook, 2006

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Labour markets indicators
Labour markets indicators
To understand the functioning and dynamics of the Labour market,
there are several key indicators about the labour markets of one
specific regions or country.
 The labour force
 The participation rate
 The unemployment level
 The unemployment rate
 The employment rate
 Others…

International
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Course
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Part 2
Part 2
The labour market institution
The definition of labour market institution
The definition of labour market institution
Examples of labour market institution
Examples of labour market institution
Determinants of labour market
institutions
institutions

International
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 What is labour market institutions?
“I know it when I saw it”
Judge Potter Stewart in US Supreme Court
 The definition of Labour Market institutions could be
very broader and obscure to categorize. The phrase
“I know it when I saw it” would be very useful
appropriation of the definition.
 The phrase "I know it when I see it" is expression by
which the user attempts to categorize an observable
fact or event, although the category is subjective or
lacks clearly-defined parameters. The phrase notably
appeared in Jacobellis v. Ohio (1964), decided by the
United States Supreme Court.

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 Maybe defined as the rules, practices and polices
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
 In other words, the labour market institutions
shows the systems, dynamics and structures
within labour markets and their constituents and
systematically cooperate together to maintain the
structures, mechanisms or orders, and cooperation
governing the behaviours of the constituents (workers,
employees, government, policy maker)

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 Labour market institutions reflect on the different level of
societies’ norms, values, cultures and legal policies, etc.
 LMI could be explicit and long-standing as certain
labour laws that are considered as universal rights, and
also could be the informal and periodic practices that
reflect the views of society for certain time phrase.

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Some examples of labour market
Some examples of labour market
institutions
institutions

(Employment protection legislation (EPL

Collective bargaining

Career placement center

The minimum wage

Unemployment benefit

Wage determination policy

Training and skill institutions

Social security and income guarantee system

Non-discrimination policy and regulation for women
and disabled

The payroll taxes

International
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institutions
institutions
Labour institution
National
Labour laws
Production
System
Social
Norm
ILO Standard
** In defence of labour market institutions, Janine Berg and David Kucera

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Key characteristics of LMI in developing
Key characteristics of LMI in developing
countries
countries
 Dual labour markets (formal/informal)
 Lage share of agriculture and rural labour
 Non-wage labour (self employment and unpaid family
workers) more important
 Labour force growth higher
 Labour force participation rates among the 15-64 are
higher (because of lower school enrollment rates and
pervasive poverty)
 Human capital investments are lower
 Non-labour poduction inputs per worker are much
smaller

International
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Part 3
Part 3
Debates on Labour Market
Debates on Labour Market
Rigidity and employment
Rigidity and employment
The reason of the high-unemployment?
The reason of the high-unemployment?
Is Labour Market Rigidity really to blame?
Is Labour Market Rigidity really to blame?
Flexicurity
Flexicurity:
: Definition, Policy, Approaches of the EU
Definition, Policy, Approaches of the EU

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Current debate
Current debates
s
 Is Labour Market Rigidity really to blame for
unemployment and lagging economic growth
rates?
 How can one pursue the distributive justice
with flexible labour markets and
globalisation?

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Employment protection measures
Employment protection measures
(EPM) and unemployment
(EPM) and unemployment
 Question : Is rigid labour market institutions to
be blame for the high unemployment rates and
difficulty of the economic growth?
 Answer 1 : Yes! The strong employment
protection measures and other social policy
protecting workers create difficulty for the
employers to deal in highly competitive market.
 Answer 2 : No! there is no strong relationship or
any statistical data proving the linkage between
EPM and high unemployment rates or any other
less-efficiency in the markets.

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EPM and unemployment -
EPM and unemployment - Answer 1
Answer 1
:
: Yes!
Yes!
 “Labour market policies like minimum wages, job
security regulation, and social security are usually
intended to raise welfare, or reduce exploitation. But
they actually work to raise the cost of labour in the
formal sector and reduce labour demand… increase
the supply of labour to the rural and urban informal
sectors, and thus depress labour incomes where most
of the poor are found…”
World Bank, 1990. p63

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Answer 1
:
: Yes!
Yes!
 The excessively strict EPM : important contributor to
the persistently higher and long-duration
unemployment experienced in many countries since
the early 1980s.
 Reduce scope for flexibility for gaining competitive
edge in markets
 Increase costs to the employers, make difficult
dismissals of workers ,makes industries hesitate to
hire new workers, hence, less incentive for job
creation.

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Answer 2
:
: NO!
NO!
 “The OECD has been previously reviewed this issues several
times [OECD (1993, 1994a, 1997a)]. Robust estimates of the
impact of EPL (Employment protection legislation) on
employment and unemployment have proven elusive, but the
international comparisons presented in these and related
studies have documented statistical associations between
stricter EPL and several measures of labour market
performance, including greater prevalence of long-duration
unemployment and temporary jobs. … but an overall
assessment of the resulting shifts in EPL strictness and their
impact on labour market performance has been lacking to
date.”
OECD Employment outlook (1999), Chapter 2,
Employment protection and labour market performance.
http://www.oecd.org/dataoecd/9/46/2079974.pdf

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Answer 2
:
: NO!
NO!
 “There is only weak evidence for the negative
impacts of labour market regulations. Moreover,
labour laws and labour market policies are needed to
ensure social justice for workers in developing countries.
In labour markets where labour is in surplus, there must
be a minimum statutory protection for workers.”
In defence of Labour Market Institutions,
Janine Berg and David Kucera,
Chapter 1.1 The Labour Market flexibility debate

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The case of Latin America
 Reform of labour market regulation: the labour policy
which has been undergone the neo-liberal reformation in
the 1980s and 1990s didn’t produce big success in
improving employment or other type of performance in
labour market in case of 6 countries – Argentina, Bolivia,
Brazil, Chile, Mexico and Uruguay.
(Fraile, L. 2009. International Labour Review, Vol. 148)
 This shows that flexible labour market institutions are not
panacea for labour market problems.
http://www.ilo.org/public/english/revue/sommaire/148-3.htm

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Average urban
unemployment
rate 7.1%,1990s
Average urban
unemployment rate
11.4%, 2003
Economic growth
due to commodity
boom & low interest
rates

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The flexicurity debate
The flexicurity debate
 The concept refers to combining labour market
flexibility with security for workers.
 The beginning of flexicurity : The concept of
flexicurity has been initiated and formulated within
the European Union related to discussions on
globalization and employment.
 The concept shows the need for delicate balance
between the need for sufficiently flexible labour
market and the need for protecting labour market
security.

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EU focusing on Flexicurity
EU focusing on Flexicurity
 ‘The key issue for employees, management, the social
partners and policy makers alike is to strike the right
balance between flexibility and security” Green paper,
EU, 1997
 The European commission is the main political promoter
of flexicurity. Although it has been mentioned mainly at
the European level, the concept to flexicurity has to be
developed into concrete policies and regulations in the
level of the member state.

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Danish Flexicurity Model
Danish Flexicurity Model
 Danish labour market
recorded the lowest
unemployment rate since
1975 and highest
employment rate in
European Union. (3.8%
unemployment rate,2006)
 OECD has pointed out the
Danish combination of a
flexible labour market and
high social security is an
ideal model for other
European countries.
(OECD, 2004)
Flexible
Labour
Market
Generous
welfare
systems
Active LMP
Figure : The “Golden Triangle” of flexicurity
(Arbejdsministeriet, 1999)

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Flexicurity policy
Flexicurity policy
 Flexible and reliable contractual arrangements through
the modern labour law, collective agreements with
workers organization.
 Comprehensive lifelong learning (LLL):
Continual training opportunity for adaptability and
employability of workers and specially for the most
vulnerable.
 Effective active labour market policy (ALMP):
Helps people to cope with rapid changes. Reduce the
unemployment duration and ease difficulty of
transition to new jobs
 Modern social security system:
Provides adequate income support, encourages
employment, and facilitates labour market mobility
and broad coverage of social protection provision.

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Reflection points
Reflection points
 The recent trends in Labour market policy in
your countries?
 Do you think the model of flexicurity is ideal
for your country?
 What do you think are priority areas of
intervention for improving labour market
institutions in your country?
 How persuasive are labour market failures in
your country?

International
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-------//-------

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