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Labor Market 'Rigidity' and the Success of Economic Reforms Across More Than 100 Countries

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  • Alvaro Forteza
  • Martin Rama

Abstract

This paper shows that labor market policies and institutions have an impact on the effectiveness of economic reform programs. Countries with relatively 'rigid' labor markets experienced deeper recessions before adjustment and slower recoveries afterwards. Minimum wages and mandatory benefits are not detrimental to growth, but the relative size of organized labor, in government and overall, appear to be crucial. Labor market rigidity thus seems to be relevant for political reasons, more than for economic reasons. These findings suggest that insufficient attention has been paid to vocal groups who stand to lose from economic reforms.

Suggested Citation

  • Alvaro Forteza & Martin Rama, 2006. "Labor Market 'Rigidity' and the Success of Economic Reforms Across More Than 100 Countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(1), pages 75-105.
  • Handle: RePEc:taf:jpolrf:v:9:y:2006:i:1:p:75-105
    DOI: 10.1080/13841280500513068
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    References listed on IDEAS

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    1. repec:ilo:ilowps:361718 is not listed on IDEAS
    2. Rémi Bazillier & Nicolas Sirven, 2006. "Les normes fondamentales du travail contribuent-elles à réduire les inégalités ?," Revue Française d'Économie, Programme National Persée, vol. 21(2), pages 111-146.
    3. Richard B. Freeman, 2009. "Labor Regulations, Unions, and Social Protection in Developing Countries: Market distortions or Efficient Institutions?," NBER Working Papers 14789, National Bureau of Economic Research, Inc.
    4. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute for the Study of Labor (IZA).
    5. Geeta Kingdon & Justin Sandefur & Francis Teal, 2006. "Labour Market Flexibility, Wages and Incomes in Sub‐Saharan Africa in the 1990s," African Development Review, African Development Bank, vol. 18(3), pages 392-427.

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    Keywords

    Labor market rigidity; economic reforms;

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