Labor market policy research for developing countries : recent examples from the literature - what do we know and what should we know?

This paper documents recent advances of research on labor market institutions, behavior, and policies in developing countries and makes suggestions for future research. The four areas of research analyzed are: i) theoretical and empirical implications of employment protection legislation on labor outcomes; ii) the issue of shifting from job to worker protection, namely, the different alternatives to severance pay: unemployment insurance and unemployment insurance savings accounts and their application to developing countries; iii) the effect of active labor market programs, particularly of training, on labor market outcomes; and iv) the causes and consequences of informality in the labor market, with special emphasis on the efforts to model the informal sector. The focus of the four sections is on theoretical and empirical work on published in the last five to seven years, and each one concludes with new directions for future research.