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Labor Market Regulations in the Context of Structural Transformation

Author

Listed:
  • Ranjan, Priya

    (University of California, Irvine)

  • Hasan, Rana

    (Asian Development Bank)

  • Eleazar, Erik Jan

    (Asian Development Bank)

Abstract

This paper constructs a theoretical model to study labor market regulations in developing countries within the context of structural transformation. When workers are risk averse and the market for insurance against labor income risk is missing, regulations that provide insurance to workers (such as severance payments) are efficiency enhancing and promote structural transformation. However, regulations that simply create barriers to the dismissal of workers not only impede structural transformation, they also end up reducing the welfare of workers. The implications of some other issues like general regulatory burden, weak state capacity, and minimum wage regulations are analyzed as well. The paper provides some empirical evidence broadly consistent with the theoretical results using cross-country data. While dismissal regulations increase the share of informal employment, severance payments to workers do not.

Suggested Citation

  • Ranjan, Priya & Hasan, Rana & Eleazar, Erik Jan, 2018. "Labor Market Regulations in the Context of Structural Transformation," ADB Economics Working Paper Series 543, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0543
    as

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    File URL: https://www.adb.org/sites/default/files/publication/415841/ewp-543-labor-market-regulations.pdf
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    References listed on IDEAS

    as
    1. Zenou, Yves, 2008. "Job search and mobility in developing countries. Theory and policy implications," Journal of Development Economics, Elsevier, vol. 86(2), pages 336-355, June.
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    Cited by:

    1. Bierut, Beata K. & Dybka, Piotr, 2021. "Increase versus transformation of exports through technological and institutional innovation: Evidence from Bayesian model averaging," Economic Modelling, Elsevier, vol. 99(C).

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    More about this item

    Keywords

    dismissal regulations; informal employment; minimum wage; severance payments; structural transformation;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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