Regulating for Decent Work: New Directions in Labour Market Regulation (Advances in Labour Studies)

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Free delivery worldwide. Bestselling Series. Harry Potter. Popular Features. New Releases. Description Regulating for Decent Work is a response to the dominant deregulatory approaches that have shaped labour market regulation in recent years. The inter-disciplinary and international approach invigorates current debates through the identification of new challenges, subjects and perspectives. Product details Format Hardback pages Dimensions x x Illustrations note XVI, p. Other books in this series. Regulating for Decent Work Sangheon Lee. Add to basket.

Gender and the minimum wage - Citation formats | Research Explorer | The University of Manchester

Towards Better Work Arianna Rossi. Wage-Led Growth Marc Lavoie. Beyond Macroeconomic Stability Iyanatul Islam. Follow ILO publications Twitter. Is part of Executive summary - Regulating for Decent Work. Regulating for Decent Work is an international and interdisciplinary response to the neoliberal ideologies that have shaped labour market regulation in recent decades. It draws on contributions by leading experts across a range of disciplines, including economics, law, political science and industrial relations.

International in scope, it includes chapters on both advanced economies Canada, Europe, United States and the developing world Brazil, China, Indonesia, Tanzania. The volume identifies central themes in the contemporary regulation of labour, including the role of empirical research in assessing and supporting labour market interventions, the regulation of precarious work and the emergence of new types of labour markets.

Each theme is explored through key contributions by leading experts. Chapters cover issues that include labour market uncertainty, the effectiveness of legal norms and methodologies for evaluating the intersection of various levels of regulation. The book advances the academic and policy debates on post-crisis labour regulation by identifying new challenges, subjects and theoretical perspectives. In contrast to the dominant deregulatory approaches, it calls for labour market regulation to be reinvigorated. Co-published with Palgrave Macmillan. It follows that, in addition to the limitations of private Sangheon Lee and Deirdre McCann 11 insurance against labour income risks, firms tend to underestimate the real cost of income or job loss, and thereby to offer suboptimal levels of job quality, including wages and job security.

First, if globalization is to be understood as rendering an economy more open to the rest of the world, and thereby heightening the interconnectedness of national economies, it would also render those economies vulnerable to external shocks and, in so doing, increase the overall risk and uncertainty in the labour market ILO ; Scheve and Slaughter ; cf. Bourguignon and Goh It should therefore come as no surprise that, among advanced economies, the level of economic openness measured by trade share of GDP is positively correlated with the intensity of job protection and the generosity of unemployment benefits Agell If this logic can be extended further, it can be argued that the integration of a national economy into the global economy will be facilitated, rather than discouraged, by the introduction of more effective worker protection mechanisms.

As will be discussed later see Figure 1. The point is that economic developments of increasing complexity and sophistication such as globalization require corresponding mechanisms that evolve to address new and increasing risks, as is illustrated by the recent policy experiences in Brazil see Berg in this volume.

In effect, the demand is that workers should be encouraged to take more risks in the labour market. However, given that such a change would involve higher risks for individual workers, the drive towards flexible work may not be successful unless the higher risks are taken care of in alternative ways. Legal regulation of unemployment insurance is a case in point. It is commonly argued that generous unemployment benefits reduce work incentives and thus contribute to an increased level of unemployment.

When such schemes exist, workers are more likely to be able to address liquidity constraints during the period of unemployment. These welfare-enhancing effects, which have attracted renewed interest during the current economic crisis, can be expected to be particularly strong for poor households that are vulnerable to external income shocks. If these effects are not taken into account, the negative effects of unemployment insurance, which rest solely on the notion of moral hazard, will inevitably be overstated.

One prominent aspect of labour regulations in this respect is their role in addressing coordination failures among employers. For instance, we have already seen that the provision of better wages and working conditions harbours potential productivity gains, but the question remains of why it should not be initiated by individual employers rather than through regulation. This is related to the collective nature of such gains. One of the classic examples is working time regulation.

Many employers are also aware of this and, in the latter part of the nineteenth century, some introduced factory-level initiatives to cut hours. The problem, as is shown by the UK history of industrialization, is that individual initiatives to reduce hours to a reasonable level may not be effective when other firms do not follow such initiatives in order to make additional short-term gains from excessive hours, such as labour cost advantages.

While different regulatory arrangements can be developed depending on the way different institutional elements are articulated,3 it can be said that the presence of regulations would help in directing the labour market away from the trap of long hours. In this situation, employers who can afford more high-wage jobs may have little incentive to create them. The introduction of minimum wages, for instance, can encourage employers to offer good jobs and improve the composition of jobs in order to achieve productivity gains see, for example, Acemoglu ; Mortensen and Pissarides As Agell , p.

The beneficial impacts that labour regulations offer to employers as a whole through influencing their behaviours are extended further by Streeck , who has drawn on the Schumpeterian concept of entrepreneurship to highlight the dynamic roles of labour institutions in general. As noted earlier, when labour regulations are intended to change incentive structures for employers, the responses of employers would be either resistance or non-observance or to adjust their strategies and interests in line with the new regulatory framework.

Combining the two aspects of labour regulations, as risk-sharing tools and beneficial constraints, one can expect that they are associated with productivity improvements. Indeed, some of the empirical studies which explicitly recognize these potential benefits confirm a positive correlation between labour regulations and productivity for example, Storm and Naastepad However, as emphasized earlier, it should be remembered that the productivity-enhancing role of labour regulations depends upon their design and implementation as well as the overall economic environment.

Labour regulations as conduits for social values While the recognition that there are potential economic benefits to be derived from regulating labour markets is fundamental to identifying new avenues for research and policy, it is nonetheless insufficient. A further critical element in realigning the narrow economic frameworks dominated by cost—benefit analyses is to acknowledge the contribution of labour market regulation to a broader set of values. The failure of the neoclassical economic tradition to reflect the social objectives served by labour laws has always been a central critique of this literature.

Sangheon Lee and Deirdre McCann 15 The recent turn to regulatory indicators has merely reinforced this tendency, in that they are designed to recognize only economic outcomes Berg and Cazes ; Lee and McCann Thus, the complex relationship between labour regulations and social values deserves substantially more research attention.

Indian labour law and its impact on unemployment, 1970-2006: A leximetric study

That is to suggest, for example, that even if such regulations prove to have certain negative impacts on employment or other quantitative variables, these detriments should be evaluated alongside their contribution to social goals. Academic traditions beyond the economic debates indicate how to integrate a broader set of objectives into theoretical perspectives on labour market regulation.

The notion of labour regulations as a repository of social values has always, for example, been prominent in the scholarly literature in the labour law tradition. The contemporary debates on the impacts of various regulations are confirming the need to recognize the social values that can be pursued through labour regulations.

This is the case, for example, in the rather paradoxical debates on the influence of minimum wage regulations. As part of the revived quest for equity in the deregulatory project, mentioned above, minimum wage sceptics have argued forcefully that these legal measures damage the interests of women by reducing their employment opportunities. Setting aside the empirical validity of this assertion, as Rubery and Grimshaw argue in this volume, it fails to recognize the role of minimum wage laws in combating gender-based pay discrimination.

The contributions by Vosko and Tomei advance similar contentions: both highlight the importance of legal regulation for a range of precious working arrangements, which tend to include the most vulnerable groups of female workers. As an example, standard economic theory predicts wage cuts in an economic downturn, due to both underbidding by workers and undercutting by employers.

Yet this strategy is not as common as might be expected, apparently due in large part to the concern that such actions would be perceived to be unfair, and labour productivity suffer as a result Bewley The above discussion can be summarized in graphic form in line with Figure 1. The curves in Figure 1.

It should also be noted that labour regulations are both endogenous and implementation-dependent see Deakin in this volume. As a result, there is no reason to assume that the benefits curve would be the same across countries. In fact, it is more reasonable to expect that the curve would vary, as illustrated by the curve for country B in Figure 1. These issues are returned to in the remainder of this chapter. The indeterminacy of labour market regulation To complement this awareness of the potential benefits of labour market regulation, it is imperative also to appreciate the complexity and indeterminacy of the regulatory frameworks that harbour them, an insight that applies both to research agendas and policy-sphere decision making on regulatory design and implementation.

On a deeper level, it implies that the abstract and static depiction of legal measures in conventional economic theory should be replaced by models that capture the intricacies of regulatory design and implementation. It has become increasingly apparent that neoclassical analyses carry a distinct narrative of the functioning of regulatory frameworks, which erases the complexities and indeterminacies of their 18 Regulating for Decent Work design and operation. This model of labour market regulation has been honed and exposed by the quantification project. Labour regulation indices The need to inject complexity into research design is therefore of particular relevance to the construction of legal indicators.

In efforts to improve the accuracy of the existing indicators, a number of elements can be suggested as being worthy of increased attention. First, the level of regulatory detail captured by most of the existing indicators is inadequate. Yet limited attention has been paid to the regulatory details that govern eligibility conditions for such benefits and the monitoring mechanisms and sanctions that form part of these regimes. The indices have also been criticized for their deficient grasp of the regulatory subject.

Similarly, the model of the employer is a manufacturing company that employs workers Botero et al. This attachment to the standard models of both worker and employer persists in an era when other strands of scholarship on labour market regulation are vigorously exposing the limitations of these models for example, Vosko ; Freedland ; Bosch ; Fudge and Owens ; McCann The indices also suggest a model for regulatory frameworks that may only apply to a very small percentage of the labour force of developing countries, whose economies tend to be dominated by small firms.

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Another dimension of regulatory indeterminacy that eludes these indices derives not from the form of regulatory instruments, but from their implementation. The available indicators have been recognized as failing to take account of the implementation of the labour market regulations that they purport to measure Aherling and Deakin ; Berg and Cazes ; Lee and McCann This limitation could be considered substantial, although possible to remedy, were the indicators not drawn on to ground policy advice on regulatory frameworks.

Where, as in the case of the EWI, they form the basis of such guidance, the failure to account for divergence in the de jure and de facto reach of legal measures becomes a fundamental flaw in indicator design. The consequence of these limitations is that, despite laudable attempts to overcome the statistical challenges of measuring and comparing legal interventions, the reliability of most of the available indicators as guidelines for the design of regulatory frameworks remains highly questionable see Lee et al.

The statistical relationship between the indicators and key employment variables is characterized as the impact of labour regulations. There are therefore considerable risks in using them to generate country comparisons and rankings. Research and policy The recognition of both the formal and de facto indeterminacy of labour market regulation can advance research and policy directions 20 Regulating for Decent Work beyond indicator-based research.

In this regard, the notion of regulatory indeterminacy can be unpacked to reveal a number of distinct dimensions. The indeterminacy of regulatory outcomes, first, is closely tied to unpredictability in the response of labour market actors to regulatory reforms Mitchell and Arup The role of the judiciary and other interpretive actors has long been recognized. Judges and other decision makers often interpret legislative measures inconsistently with the objectives asserted in the policy literature from which they emerged.

Indeed, highlighting such divergence is a staple analytical approach of labour law scholarship see Anderman Yet the responses of other actors are also highly influential. Employer responses are known to be critical in determining the influence of regulations. In particular, neither predictions of employer behaviour drawn from narrowly-focused economic analyses, nor the scale of political resistance to a given reform, appear to be useful guides to the evaluation of such measures Streeck To illustrate, a study by Edwards et al.

Similarly, the progressive introduction of a hour work week in the Republic of Korea has been relatively smooth, despite initial predictions of widespread non-compliance Lee Also, while wage regulations at the national level a common focus of empirical studies are generally predicted to generate rigid wage adjustments, actual wage flexibility can nonetheless be high due to rapid firm-level wage adjustments see Cardoso on the Portuguese case.

These include forming alliances with other actors such as local government departments and employment agencies. One suggestion is to reverse the conventional sequencing of regulatory design and assessment: to permit the findings of empirical sociolegal research to determine the purpose of their regulatory subject Mitchell and Arup This recognition of indeterminacy in regulatory purpose might be hoped to prompt further investigation of the circumstances in which implementation will be likely to sustain the protective potential of labour regulations.

It may also suggest that certain regulatory strategies harbour a capacity for regeneration in novel social and economic contexts. More authentic understandings of the operation of labour regulations also recognize the potential for their divergent application across the range of regulatory subjects. As precarious work and rising informality prise regulatory frameworks from their traditional subjects and reinforce existing regulatory lacunae, the tasks of discerning how regulatory frameworks govern different labour market constituencies is pressing.

As noted above, investigations of the legal treatment of non-standard forms of labour market engagement are already relatively advanced. Further, labour regulations do not operate in a vacuum but generally in conjunction with related regulations or labour market institutions. As a result, institutional complementarities or compatibilities are significant in determining the outcomes of labour regulations. Indeed, these complementarities underlie the Danish model of flexicurity. Similarly, the performance of minimum wage policies is related to the extent and structure of collective bargaining.

Finally, research that explores the operation of regulatory instruments must resist a set of influential, yet simplistic, assumptions about the ways in which these measures operate, particularly in low-income settings. This point has become more pressing as labour market regulation is increasingly conceptualized from an international perspective see, for example, Conaghan et al.

The limited availability of data on developing countries is a profound constraint in understanding the operation of regulatory measures in these settings; yet the problem is not solely one of data availability. Such assumptions, however, are based on simplistic characterizations of labour regulations that do not attend to the complexities of their functioning in low-income settings. Although there is a dearth of empirical studies on the actual effects of labour laws in developing countries see Boeri et al.

Both Berg and Islam, for example, reveal that the available data do not support the claim that labour regulations advance informality in either Brazil or Indonesia.

New Directions in Labour Market Regulation

Indeed, they conclude that the experience of these countries confirms the significant role of regulatory intervention in promoting formalization. Lee and McCann challenge a related assumption about the relevance of statutory standards: that workers in developing countries are generally unaware of their entitlements under protective legal measures.

Their research on awareness in Tanzania suggests instead a developed legal culture in which awareness of norms is relatively high and workers are prepared to take action to assert their legal rights.

A further guise in which the assumed irrelevance of formal legal norms appears in the mainstream literature is the widespread dismissal Sangheon Lee and Deirdre McCann 23 of conventional enforcement institutions. This account expects labour inspectorates in developing countries to be ineffective, whether as the result of lack of funding, limited capacity or corruption see generally Fenwick et al. A literature is evolving, however, that questions such generalizations by highlighting countries in which enforcement mechanisms operate relatively effectively for example, Piore and Shrank ; Pires In this volume, Pires addresses the characterization of labour inspectorates as inescapably legalistic and bureaucratic.

He concludes that, under certain conditions, structures and strategies that manage discretion can create incentives for labour inspectors to adopt innovative practices. It is our hope that the chapters in this collection will encourage further research in this direction as part of broader efforts to investigate the operation of labour market regulation.

Notes 1. Of course, this is not to imply that any form of government intervention can be justified; this market failure is a necessary, but not sufficient, condition for such interventions. References Acemoglu, D. Agell, J. Aghion, P. Aherling, B. Anderman, S. Anxo, D. Arthurs, H. Arup, C. Bakvis, P. Bassanini, A. Basu, K. Benjamin, P. Berg, J. Bertola, G. Bewley, S. Boeri, T. Bosch, G. Botero, J. Boulin, J. Bourguignon, F. Cahuc, P. Cardoso, A. Collins, H. Conaghan, J. Davies, P. Deakin, S. Dickens, W. Dufwenberg, M. Edwards, P. Fehr, E. Fenwick, C. Fredman, S. Freedland, M. Fudge, J.

Heckman, J. Lee, S. McCann, D. Manning, A. Mitchell, R. Mortensen, D. Murray, J. Owens, R. Piore, M. Pires, R. Pissarides, C. Scheve, K. Schmid, G. Storm, S. Streeck, W. Vosko, L. World Bank. Revisions to the EWI Indicator. Wright, E. This page intentionally left blank Part I Theories and Perspectives This page intentionally left blank 2 The Evidence-Based Case for Labour Regulation Simon Deakin Introduction There have been empirical studies of the effects of labour and employment laws since the inception of modern social legislation.

However, until relatively recently, little attention was paid to the role of the legal system as a causal variable, with the potential to shape social and economic outcomes in its own right. Certain regulatory initiatives, such as minimum wages and employment protection laws, were studied intensively with a view to assessing their impacts on output variables such as unemployment and productivity, but without close regard to their legal form.

For the purposes of economic modelling, laws were generally assumed to be self-executing, and issues concerning the incompleteness and imperfect operation of legal rules were left unexplored. As a result, notwithstanding the existence of a large body of literature employing increasingly complex statistical methods, issues of concern to legal researchers and policy makers were only marginally addressed.

Over the course of the past decade the picture has changed radically. The role of legal systems in shaping the nature of regulation and, as a result, economic outcomes, has been placed centre stage by the highly influential legal origins hypothesis La Porta et al. Important and influential as it is, the legal origins hypothesis is only one of a number of emerging paradigms in the social sciences with implications for the empirical study of labour law. The varieties of capitalism approach in comparative political economy has opened up a number of insights, stressing, in contrast to the legal origins literature, the endogeneity of legal and related institutions to wider political and economic structures Hall and Soskice Despite 31 32 Regulating for Decent Work their differences, these two approaches share an emphasis on comparative methods, and have prompted the development of new data sources to measure cross-national differences in legal regimes.

There has been a proliferation of indicators which attempt to capture the extent of variation across countries in the contents of labour law rules. The growing availability of this kind of data has stimulated interest in statistical methods capable of isolating the impact of legal change on economic development and vice versa, particularly techniques for time series and dynamic panel data analysis.

By virtue of these developments, conventional understandings concerning the nature of the law—economy relation are being reassessed, together with some previously accepted wisdom on the supposedly negative economic impacts of labour law regulation. If the advice given to policy makers has become, as a result, less clear-cut than it was, the policy-formation process should in principle benefit from an improved understanding of the role of national and local contexts in shaping the emergence and application of labour law rules.

This chapter will review the recent developments to which we have just referred. It begins with an account of theoretical perspectives before moving on to look at the nature of new data sources and techniques for analysing them and the state of the art in the empirical literature on the economic effects of labour law rules of different kinds, with the focus on wage regulation and employment protection.

Issues arising from the use of empirical research to guide policy will then be addressed in a concluding section. The focus on this largely quantitative and comparative literature is not intended to imply that other approaches, such as those based on qualitative case study work or experimental studies, are not also valid or important ways of exploring the operation of labour laws; for reasons of space it is not possible to do more than provide a view of one part of what is a huge field. The selection of material here is intended to highlight recent theoretical and methodological innovations of particular interest to lawyers and policy makers and to relate them to the current state of the art on the empirical effects of labour legislation.

Theoretical perspectives on the economic and social impacts of labour laws and their relationship to empirical research The empirical literature on the impacts of labour laws has been shaped by theoretical perspectives, particularly those drawn from neoclassical Simon Deakin 33 labour economics where the conventional understanding has been that labour law rules operate as an exogenous intervention in, or interference with, the operation of market forces.

Labour market

In the neoclassical model, wages and employment are set by the interaction of supply and demand for labour. The market operates as an implicit regulator of decisions to trade, so that firms which underpay risk losing their workers to competitors just as workers who overbid for wages risk exclusion from employment as firms substitute capital for labour or cease to trade. The market also favours equality, in the sense of equal pay for work of equal value; the spontaneous movement of the market to equilibrium ensures that a single price or wage is set for labour of comparable productivity.

Labour laws themselves are seen as an external source of imperfections; they originate in decisions made in the political sphere and reflect rent-seeking, or distributional demands, by collective groups. Rent-seeking, as it is aimed at redistribution rather than value creation, imposes a deadweight loss on the economy and so constitutes a source of inefficiencies.

Further inefficiencies arise from distortions in the operation of the market which are induced by legal interferences with bargaining.

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Wage regulation such as minimum wage or pay equity legislation, or the taking of wages out of competition through collective bargaining depresses demand for labour. It thereby results in the exclusion from the market of those it is designed to help, that is, the low paid. Thus minimum wage laws, for example, are predicted to have particularly adverse effects for the young, workers without formal skills or qualifications, members of ethnic minority groups, and individuals seeking to return to the labour market after a spell of unemployment Minford From this point of view, labour legislation is not just inefficient, but discriminatory and unjust in its effects.

In the early s a challenge to the orthodox view emerged in the form of empirical studies apparently refuting the claim that minimum wage legislation caused higher unemployment. Card and Krueger demonstrated that US states which raised their minimum wages experienced increases in both earnings and employment levels for younger workers, while Machin and Manning and their colleagues demonstrated that the abolition of minimum wage legislation in the United Kingdom had led to falling employment in the affected sectors Dickens et al.

These studies had a significant impact for a number of reasons. We return to this point below in our discussion of the empirical literature on wage regulation see section below on minimum wages. It also helped that, around this time, theory had developed to the point where a more systematic account could be given of labour market imperfections. Meanwhile, transaction cost economics Williamson et al. The theoretical reappraisal represented by this work remains, however, somewhat incomplete. Rather than being seen as undermining the competitive model of the labour market, it has been understood as qualifying it in the narrow sense of showing that, in certain specific contexts, the conditions for perfect competition may not obtain.

Simon Deakin 35 The standard economic analysis of labour law rules is based not just on the idea of a self-equilibrating market which corrects itself in response to temporary dislocations; it also embodies, albeit less explicitly, a theory of the operation of legal rules. There are two linked aspects to this. The first is the idea, referred to already, that legal rules are exogenous to the market relations and so operate as an external imposition upon them. In this approach, legal rules are understood as devices for coordinating the expectations of actors under conditions of uncertainty. Laws are not simply imposed in a top-down fashion but, just as often, crystallize conventions which first emerge at the level of exchange relations before being formalized in contractual agreements and, at a further level, legal texts.

As responses to market failures of various kinds, they originate in particular economic and political settings. The core institutions of labour law systems, including collective bargaining, minimum wage laws and employment protection legislation, express this fundamental trade-off in different ways, which reflect the solutions arrived at in particular national and regional contexts and which have been more widely diffused over time.

They are neither self-executing, nor capable of being made operational by enforcement alone. Their successful implementation depends upon the presence of understandings and beliefs among market actors beyond the scope of 36 Regulating for Decent Work the legal system. Just as the form and content of a legal rule is to a large extent the result of a process of evolution which is context-specific and path-dependent, so the operation of legal rules depends upon contextual factors which vary across time and space.

This implies an empirical research agenda which acknowledges the likely indeterminacy of legal rules in terms of their economic effects. Because their origins are context-specific, their effects will not be constant across firms, industries or national systems. Their implementation will depend upon factors beyond the law at the level of social norms and self-regulatory practices, or upon the particular point in the economic cycle at which they are introduced. They may have both positive and negative effects in terms of their impact on efficiency, which may offset each other.

To the extent that all or any of these things are the case, it becomes possible to predict the effects of labour law changes only if a good deal is known about the contexts in which they are applied. This implies an empirical strategy based on awareness of the importance of cross-national and regional diversity, and of the need to control for it when modelling the impacts of legal change. Legal origin can thereby be understood as an exogenous, long-run causal variable, explaining the different economic trajectories of national systems, and the persistence of cross-national diversity La Porta et al.

Common-law origin systems are said to have a bias in favour of market-creating rules and a laissez-faire approach to economic regulation, in contrast to an emphasis on government ownership and regulation, and on redistribution, in civil-law origin systems. In its strong form, it predicts that inherited differences in regulatory style feed through into economic performance outcomes, with common law systems experiencing faster growth by virtue of their greater efficiency.

This version of the hypothesis is overly dependent on a few stylized and arguably misspecified facts concerning legal systems for discussion, see Deakin It is also only weakly supported empirically, given that evidence for common law systems having faster growth rates than civil law ones has proved hard to come by see La Porta et al.

A weak form of the hypothesis may be more defensible: this is one in it is accepted that legal infrastructure could have a long-run influence on economic development, but which sees legal institutions as coevolving with economic and political structures rather than as exogenously determining them Ahlering and Deakin A coevolutionary perspective is compatible with the varieties of capitalism approach.

Instead, emphasis is placed on the role of political structures and the composition of interest group coalitions in shaping economic institutions over the long run. Thus a link has been claimed between proportional representation voting systems, which are said to favour coalition-building and consensus politics, and the emergence of redistributive labour law regimes, solidaristic welfare states and activist industrial policies in coordinated market systems.