LABOR-MARKET INSTITUTIONS AND POLICIES - HELP OR HINDRANCE TO ECONOMIC-DEVELOPMENT

This paper examines the wide disagreement about the value of institutional interventions in developing country labor markets between (World Bank) economists who see government regulation of wages, mandated contributions to social funds, job security, and collective bargaining as ''distortions'' in an otherwise ideal world and International Labour Organisation (ILO) economists who stress the potential benefits of interventions, bold that regulated markets adjust better than unregulated markets, and endorse tripartite consultations and collective bargaining as the best way to determine labor outcomes. It presents a scorecard of evidence to judge which view is closer to the truth on particular issues. The paper finds little support for the notion that interventions are major impediments to resource allocation, structural adjustment, or stabilization programs, although in some cases they have sizable costs. At the same time, it finds little evidence on the value of social pacts and related consultative modes of adjustment favored by the ILO. The paper proposes a different perspective on labor market policies and institutions-as factors in the political economy of economic reform-and develops a model designed to capture the role of interventions and institutions in buttressing support for economic reforms.