The impact of labor market regulations
AbstractThe authors investigate the impact of labor market regulations in settings where compliance is incomplete. They review some stylized facts about labor market behavior, present an analytical model that may explain such behavior, and provide a checklist for assessing the distortionary impact of a regulation such as the minimum wage. They take as their starting point the limited evidence about the distortionary effects of such regulations and argue that there may be natural limits on the efficiency losses engendered by labor market regulations. First, the regulations may not be binding at market equilibrium. For example, minimum wages may be set so low that they are ineffective. Second, even if they are binding, the relevant elasticities of supply and demand may be so low that the regulations have little impact on efficiency. Third, even if the regulations are binding and elasticities are sizable, compliance may be low. The authors argue that the likelihood of compliance will be greatest when the regulations are binding and the relevant elasticities are sizable. That is, if the distortionary costs of regulations are not rendered insignificant by the first two reasons, then the returns to noncompliance will be high and, other things being equal, employers will evade or avoid the regulations, thereby minimizing the imact on efficiency. The argument rests on profit maximization subject to a hard budget constraint. Public enterprises, which are not concerned only with profit maximization and often have softer budget constraints than the private sector, may be more willing to conform to profit-reducing regulations, but in this case the authors argue that compliance may reduce already-existing efficiency losses.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1418.
Date of creation: 28 Feb 1995
Date of revision:
Environmental Economics&Policies; Health Monitoring&Evaluation; Labor Policies; Public Health Promotion; Banks&Banking Reform; Health Monitoring&Evaluation; Banks&Banking Reform; Municipal Financial Management; Poverty Assessment; Environmental Economics&Policies;
Other versions of this item:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gelb, A & Knight, John B & Sabot, R H, 1991. "Public Sector Employment, Rent Seeking and Economic Growth," Economic Journal, Royal Economic Society, vol. 101(408), pages 1186-99, September.
- Alida Castillo Freeman & Richard B. Freeman, 1991. "Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?," NBER Working Papers 3759, National Bureau of Economic Research, Inc.
- Forteza, Alvaro & Rama, Martin, 2001.
"Labor market"rigidity"and the success of economic reforms across more than one hundred countries,"
Policy Research Working Paper Series
2521, The World Bank.
- Alvaro Forteza & Martín Rama, 2000. "Labor Market "Rigidity" and the Success of Economic Reforms Across more than One Hundred Countries," Documentos de Trabajo (working papers) 0600, Department of Economics - dECON.
- Brown, K.D. & Deardorff, A.V. & Stern, R.M., 1997.
"Trade and Labor Standards,"
394, Research Seminar in International Economics, University of Michigan.
- Yana van der Meulen Rodgers & Gunseli Berik, 2006. "Asia's Race to Capture Post-MFA Markets: A Snapshot of Labor Standards, Compliance, and Impacts on Competitiveness," Working Paper Series, Department of Economics, University of Utah 2006_02, University of Utah, Department of Economics.
- Dinkelman, Taryn & Ranchhod, Vimal, 2012.
"Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa,"
Journal of Development Economics,
Elsevier, vol. 99(1), pages 27-45.
- Dinkelman, Taryn & Ranchhod, Vimal, 2011. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," CEPR Discussion Papers 8682, C.E.P.R. Discussion Papers.
- Taryn Dinkelman & Vimal Ranchhod, 2010. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," SALDRU Working Papers 44, Southern Africa Labour and Development Research Unit, University of Cape Town.
- Taryn Dinkelman & Vimal Ranchhod, 2010. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," Working Papers 1254, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Alan Krueger, 1996.
"Observations on International Labor Standards and Trade,"
741, Princeton University, Department of Economics, Industrial Relations Section..
- Alan B. Krueger, 1996. "Observations on International Labor Standards and Trade," NBER Working Papers 5632, National Bureau of Economic Research, Inc.
- César Calderón & Alberto Chong & Rodrigo O. Valdés, 2005.
"Labor Market Regulations and Income Inequality: Evidence for a Panel of Countries,"
Central Banking, Analysis, and Economic Policies Book Series,
in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Labor Markets and Institutions, edition 1, volume 8, chapter 7, pages 221-279
Central Bank of Chile.
- César Calderón & Alberto Chong & Rodrigo Valdés, 2004. "Labor Market Regulations and Income Inequality: Evidence for a Panel of Countries," Research Department Publications 4375, Inter-American Development Bank, Research Department.
- Calderon, Cesar & Chong, Alberto & Leon, Gianmarco, 2007.
"Institutional enforcement, labor-market rigidities, and economic performance,"
Emerging Markets Review,
Elsevier, vol. 8(1), pages 38-49, March.
- César Calderón & Alberto Chong & Gianmarco León, 2006. "Institutional Enforcement, Labor-Market Rigidities, and Economic Performance," Research Department Publications 4492, Inter-American Development Bank, Research Department.
- Rémi Bazillier & Nicolas Sirven, 2006.
"Les normes fondamentales du travail contribuent-elles à réduire les inégalités ?,"
Cahiers de la Maison des Sciences Economiques
bla06016, Université Panthéon-Sorbonne (Paris 1).
- Rémi Bazillier & Nicolas Sirven, 2006. "Les normes fondamentales du travail contribuent-elles à réduire les inégalités ?," Documents de travail 123, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV.
- Rémi Bazillier & Nicolas Sirven, 2006. "Les normes fondamentales du travail contribuent-elles à réduire les inégalités ?," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00112316, HAL.
- Jan J. Rutkowski & Stefano Scarpetta, 2005. "Enhancing Job Opportunities : Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 7408, March.
- César Calderón & Alberto Chong & Rodrigo Valdés, 2004. "Normativa del mercado laboral y desigualdad del ingreso: elementos de juicio de un grupo de países," Research Department Publications 4376, Inter-American Development Bank, Research Department.
- Derk Bienen, 2002. "Mindestlohnreformen in Südamerika – ökonomische Rechtfertigung und praktische Umsetzung," Ibero America Institute for Econ. Research (IAI) Discussion Papers 090, Ibero-America Institute for Economic Research.
- Maja Micevska, 2004. "Unemployment and Labour Market Rigidities in Southeast Europe," The wiiw Balkan Observatory Working Papers 049, The Vienna Institute for International Economic Studies, wiiw.
- Freeman, Richard B., 2010. "Labor Regulations, Unions, and Social Protection in Developing Countries," Handbook of Development Economics, Elsevier.
- Dessing, Maryke, 2004. "Implications for minimum-wage policies of an S-shaped labor-supply curve," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 543-568, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.