June 17, 2014 | Contribution by
Gordon Betcherman is a Professor in the School of International Development and Global Studies, University of Ottawa.
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Man working inside a large reinforced steel tube, Phillippines.
Photo credit: Flickr @Nonie Reyes, World Bank Photo Collection
As governments debate labor market regulations — a highly controversial topic, sometimes for ideological reasons — it is vital to base decisions on empirical evidence. Thus, a welcome addition to the debate is the work of Gordon Betcherman — a Professor in the School of International Development and Global Studies, University of Ottawa — who contends that the key challenge for policy makers is to avoid the extremes of over- and under-regulation. As he tells the JKP, most countries are on a "plateau." That is, although society could still benefit from labor reforms aimed at greater efficiency or better work protection, labor regulations aren't the binding constraint on the country's number of jobs or overall productivity. Rather, he says, policy makers should be giving greater attention to developing human capital (better job skills), ensuring that cities function well, and adopting good trade policies. However, there are some countries on "cliffs," which means they are paying in economic and social terms. One cliff is over-regulation, where regulations exacerbate imperfections or create new ones; the other is under-regulation, where regulations don't address imperfections. Going forward he calls for more research on: (i) developing tools to assess whether a country's regulatory framework may be on a cliff or approaching the cliff; and (ii) developing tools to understand how labor regulations are redistributing income among different types of workers.
(For more, see Betcherman's policy note "Developing labor market regulations in developing countries" for IZA's World of Labor; David A. Robalino's blog "Getting Labor Market Regulations Right"; and Carmen Pagés' upcoming blog on the topic.)