17401. Labor Institutions and Development Under Globalization
- Author:
- Servaas Storm and Jeronim Capaldo
- Publication Date:
- 07-2019
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Labor market regulation is a controversial area of public policy in both developed and developing countries. After decades of de-regulatory advice, international financial institutions have recently come to a less extreme position. But any concessions to labor regulation are based on concerns for social stability or for short-term support to aggregate demand, while regulation continues to be viewed as harmful to economic efficiency. In this paper we take a deeper look at the impact of labor institutions on economic development in two ways. First, we propose a macroeconomic model with balance-of-payments constraint for a “small” developing country open to trade and foreign capital. This helps us clarify the importance of a dynamic view of economic efficiency, as opposed to the static view embedded in mainstream policy advice. Secondly, we discuss the political economy of labor regulation. We argue that labor institutions promote economic development though positive effects on aggregate demand, labor productivity and technology.
- Topic:
- Economics, Labor Issues, Regulation, Labor Market, and Labor Cost
- Political Geography:
- Global Focus