Labor Market Regulations in the Context of Structural Transformation

Priya Ranjan (), Rana Hasan () and Erik Jan Eleazar ()
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Priya Ranjan: University of California, Irvine
Rana Hasan: Asian Development Bank
Erik Jan Eleazar: Asian Development Bank
Authors registered in the RePEc Author Service: Priyaranjan Jha

No 543, ADB Economics Working Paper Series from 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.

Keywords: dismissal regulations; informal employment; minimum wage; severance payments; structural transformation (search for similar items in EconPapers)
JEL-codes: J38 J46 O12 O17 O57 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2018-04-16
New Economics Papers: this item is included in nep-ias and nep-iue
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0543

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