Effects of Labor Market Over-Regulation on Renumeration and Job Security: Evidence from the Zambian Labor Market

There is debate in the literature regarding the effects of labor market regulation, particularly about its impact on employee remuneration and job security. One school of thought contends that labor regulation has the effect of increasing labor adjustment costs, which has a negative impact not only on wages and employment levels but also on productivity. On the other hand, another school of thought posits that regulation may increase worker motivation and commitment and stimulate labor-saving technological progress, thereby increasing productivity while also improving employee earnings and job security in the labor market. This paper's primary objective is to examine how a contentious labor market regulation in Zambia—the mandatory 25 percent gratuity—affects employee remuneration and job security. It presents empirical evidence, based on the results of a survey of 100 companies in Zambia, that excessive regulation of the labor market increases labor costs, resulting in lower employee wages and job insecurity. We corroborated the effects of the recently implemented 25 percent mandatory gratuity with evidence from the survey and by reviewing internal reports from the Ministry of Labor and Social Security to reinforce this argument.