Via IMF (Den Internationale Valutafond)

Designing Labor Market Institutions in Emerging Market and Developing Economies

May 21, 2019

Good morning. Welcome to the launch of the IMF Staff Discussion Note on “Designing Labor Market Institutions in Emerging Market and Developing Economies.” My thanks to the colleagues who have worked so hard on this paper, which experienced an unusually long gestation. That is a testimony to the challenging issues it addresses.

The events of the last decade—beginning with the Global Financial Crisis—have required us to re-examine our work on labor market institutions and, most germane to our policy recommendations, our assumptions about labor market flexibility.

The labor market policies that were part of the structural reforms in the post-crisis period had mixed outcomes. And that suggested the need for the IMF to develop a more informed and nuanced approach that recognizes that there is no one-size-fits-all, especially when jobs are at stake. There is a place for labor market flexibility in some settings, just as it is important to recognize the place of labor unions, especially when they contribute to a democratic consensus on labor market policies.


Learning from Experience

It has been incumbent upon the IMF to learn from these experiences and to strengthen our expertise, especially as we address labor market issues in diverse emerging market and developing economies. This is what our country teams have been doing for some time in their policy work. And that is what it means to be a learning institution. I believe it makes us a better advisor and a better incubator of ideas.

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One basis for this reassessment of labor market policies has been the Fund’s work on inequality. This work has been tied to labor market issues since it moved into the mainstream of our policy work several years ago, along with gender, social spending and other topics. But at times we have approached the equity issues related to labor markets with less certainty. That is why this paper is so useful.

In our inequality research, recent World Economic Outlooks have addressed the downward trend in labor income shares, trends in labor force participation within the context of rising market power of powerful corporations—no surprise here that labor has lost ground—and reasons for slow wage growth. Previous staff discussion notes also have examined inequality and labor markets, most recently how to get more young people into jobs in emerging market and developing economies.

Previously, our labor market work has focused on the advanced economies. It has helped us advise countries on structural reforms as their macroeconomic policies became more constrained and less potent. Now we are expanding the scope of our research and, in this paper, dig deeper into the specifics of labor market institutions in emerging market and developing countries. This is timely—the recently concluded Review of Program Design and Conditionality found that meeting program objectives will require building more expertise in labor market reforms. So, while the goal of this paper is not to set IMF policy, its analysis ideally will help us improve the quality of our labor market policy advice down the road.

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Balancing Equity and Efficiency

A key focus of the paper is the balance of equity and efficiency. It makes the point that in emerging market and developing countries, the challenge is to take into account the prevalence of the informal economy and weak government administrative capacity. It points to the risk that poorly designed labor market institutions can increase informality and weaken worker protections.

The paper addresses how to strengthen safety nets to function efficiently within each country’s unique institutional characteristics. For example, how to better design unemployment benefit systems, employment protection legislation, and minimum wage schemes.

The work undertaken by Romain Duval and his co-author, Prakash Loungani, is the outcome of several years of interaction with experts and advocates in the field, including the International Trade Union Confederation. As you can imagine, the unions have not been shy letting us know their views on these issues. I, myself, have had several discussions with ITUC General Secretary Sharan Burrow that were informative and constructive.

We have benefited from these interactions. They have helped to sharpen our questioning of our policy assumptions. I hope the unions have gained from our perspectives as well. And we look forward to our discussions with the ITUC on this paper in the near future.

We also have had consultations for this paper with our colleagues from the International Labour Organization, which this year is celebrating the centenary of its founding. I am particularly pleased that our panel this morning includes Sangheon Lee, the Director of the ILO’s Employment Policy Department.

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Allow me to welcome Romain Duval to the podium, and I wish you the best with your discussion.

IMF Communications Department


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