Balancing Workers' Protection and Labor Market Flexibility in China
Across the world, governments use minimum wages, employment protection legislation, and other labor regulations that define the legal boundaries of employment to manage potential labor market imperfections. These imperfections include information a...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/undefined/642381637001260198/Balancing-Workers-Protection-and-Labor-Market-Flexibility-in-China http://hdl.handle.net/10986/36615 |
| Summary: | Across the world, governments use
minimum wages, employment protection legislation, and other
labor regulations that define the legal boundaries of
employment to manage potential labor market imperfections.
These imperfections include information asymmetry, uneven
market power between employers and employees, discrimination
by employers, and incomplete markets for unemployment
insurance and insurance for other work-related risks. Labor
regulations are also widely used to further other
objectives, most notably the distribution of wealth among
the population. Labor regulations can have a wide range of
impacts on the employment and earnings of workers and the
productivity and profits of firms. While these regulations
have become common currency in most countries, many
economists believe that over-regulation of labor markets can
have detrimental consequences. In fact, until relatively
recently, most economists were skeptical that labor
regulations could have any positive impacts on either
workers or firms. In recent years, a more nuanced view has
emerged that argues that both over-regulation and
under-regulation can constrain job creation and have other
negative impacts, including exacerbating inequalities in the
labor market. The proponents of this view assert that
over-regulation can reduce labor market flexibility, while
under-regulation can leave workers unprotected by not
correcting for labor market imperfections. In practice,
striking the right balance between workers’ protection and
market flexibility is not easy. From a political economy
point of view, different groups with special interests lobby
vigorously either for further protection or further
flexibility. As a result, minimum wages and employment
protection legislation are often highly politicized issues.
However, even from a technical point of view, it is not easy
to draw unequivocal conclusions about the impact of labor
regulations on employment levels, earnings, job turnover,
productivity, and other outcomes because of the ambiguity of
theoretical models and the scarcity of empirical evidence on
the causal impacts of labor regulations. Empirical evidence
is even scarcer for developing and emerging economies than
for developed countries. |
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