International

Labour

Organization

labour market policies

an introductory elaborated byFred Fluitman

Presented by Mostefa Boudiaf

International Training Centre of the ILOTurin, Italy, 2007

• among sources:– ILO, World Employment Report 1998/99

– Betcherman, G. An Overview of Labor Markets World-Wide: Key Trends and Major Policy Issues, World Bank, 2002

– Freeman, R.B.Labor Market Institutions and Policies: Help or Hindrance to Economic Adjustment?, 1993

labour market policies measures meant to address failure

in labour markets, in particular measures that reduce unwanted distortions in the process of supply meeting demand.

labour• the Oxford Dictionary:

physical or mental work; exertion; toil• economists:

a production factor• the International Labour Organisation:

“labour is not a commodity”

labour force

all those above a specified age, and during a specified brief period, who are either working, or available for work and seeking it

also known as the economically active population

fu ll tim e part tim e

fu lly em ployed

visible invisible

underem ployed

w orking

available and seeking available, not seeking not available

not w orking

w orking age not w orking age

PO PULATI O N

“the currently active population”

labour force

0102030405060708090

100

1995 1996 1997 1998 1999

populationlabourforceemploymentwage-empl.

labour force employed

• wage-employed

• self-employed

unemployed

under-employed• visible

• invisible

labour force: stock and flow

stock

31 december 2001

stock

31 december 2002

leaving entering

staying

flows

the market

the market

the market

supply demand

buy, rent borrow,hire

exchangeexchange

buy, rent borrow,

hire

supply demand

allocation and price fixing

the vegetable market

production exchange consumptionsell &buyrice or potatoes

supply demand

the housing market

production exchange usesell&buy or renta house

supply demand

the money market

production exchange uselend & borrowmoney

supply demand

the labour market

worker, orpotentialworker

employer, oremploymentopportunity

the labour market

production exchange useoffer&hire of labourpotential

supply demand

the labour market

production exchange useallocation and price fixing

supply demand

the virtual space where,

in a more or less organised manner,

the demand for and the supply of

all sorts of labour will meet

and where wages are determined

labour market

in free (labour) markets the forces of supply and demand are allowed to operate unhampered by government regulation or other interference; decisions by individual “buyers” and “sellers”are coordinated by movement in prices.

free? market?

in reality, free labour markets don’t exist:• labour is not a commodity

– people have rights

• competition is far from perfect– contractual relationship inherently unbalanced

– considerable information problems

• decisions are subject to regulation– formal or informal

free? market?

regulation

different mixes of three modes of regulation:

– statutory, i.e. through laws and decrees• hiring, firing, job security• minimum wages

– “voice”, i.e. through collective bargaining• wages and other working conditions

– market-based

regulation

• opposing views on its employment outcomes:

Freeman(1993):• the “institutionalist” view• the “distortionist” view

regulation

• the “institutionalist” view:

regulation ensures social protection seen as instrumental in productivity growth (training, accumulating firm-specific skills) and as a means of moderating the effects of downswings in aggregate demand

regulation

• the “distortionist” view:

institutional forms of regulation impede adjustment to economic shocks, discourage hiring, and favour “insiders” (regular workers, mostly prime-age males) over “outsiders” (e.g.women and young workers)

regulation at the international level• the ILO Declaration on Fundamental Principles and Rights at Work

(1998)• freedom of association and the effective right to collective bargaining• the elimination of all forms of forced or compulsory labour• the effective abolition of child labour• the elimination of discrimination in employment and occupation

0

10

20

30

40

50

60

1996 1997 1998 1999

demandsupply

industrialised country

labour market

0

10

20

30

40

50

60

1996 1997 1998 1999

demandsupply

developing country

labour market

structural over-supply

employment in developing countries

wage-employment

self-employment

rural urban

agriculture non-agric.

informal sector

factors affecting labour markets

• affecting both supply and demand side

– failing institutions• labour market information

– political instability, conflict

– natural disasters

– health crises

factors affecting labour markets

• affecting the supply side

– population growth

– changes in labour force participation

– migration within and between countries

– the state of education and training

factors affecting labour markets

• affecting the demand side:

– economic/financial crises

– changes in economic structure

– technological change (ICT!)• proces innovation• product innovation

– globalisation

labour markets of developing countries

• structural over-supply of labour• generally low levels of education and training• significant un- and underemployment• more self-employment than wage-employment• large informal sector of the economy• institutional forms of regulation remain modest

labour market policies

production exchange use

supply demand

labour market policies

production

e.g. investing in human resources

labour market policies

exchange

e.g. labour market information

labour market policies

use

e.g. social protection

active labour market programmes

• primary objectives: (re-) integration of the unemployed; productivity/income growth of under-employed– to increase the supply of needed skilled workers (e.g. training

employed and unemployed, programmes for the disabled)

– to increase the demand for workers (e.g. direct jobcreation, incentives to employers, self-employment/ SME promotion)

– to improve matching workers and jobs (e.g.job search assistance, public employment services, mobility incentives)

passive labour market programmes

• primary objective: income support to the unemployed– early retirement– severance pay– unemployment insurance– unemployment assistance– public works programmes

globalisation

• trade liberalisation and export growth • increase in direct foreign investment• globalisation of financial markets• rapid technological change• information revolution

• increasing competitiveness• more flexible production systems• labour market flexibilisation• structural change• privatisation

globalisation

world-wide liberalisation of trade, investment and capital flows– exports world-wide are rising as a proportion of GDP

– foreign direct investment flows have also risen sharply

– growth of global production systems, incl. intra-firm trade in intermediate products, subcontracting, licensing, franchising, and out-sourcing arrangements across national frontiers

– huge growth in volume of international trading in foreign exchange, bonds and equities, and new financial instruments

globalisation

With a view to maintaining competitiveness in international markets and to safeguard their balance of payments, Governments are under pressure to get their macro-economic policies “right” , to minimise “market distortions”, and to improve “allocative efficiency”.

globalisation

Hence, the widespread trend towards smaller government, including lower expenditure and taxes, reduced political support for redistributive measures, and deregulation of markets, including labour markets.

globalisation

At the same time, the pace of technological change and product obsolescence has increased, as enterprises try to keep one step ahead of their competitors at home and abroad. The aim is for flexible production systems:

globalisation

• flexible automation,• lean production,• just in time delivery,• total quality management, and• flexible work forces

globalisation

labour market segmentation

demand

supply

demand demand

supply

supply

labour market segmentation

men women

labour market segmentation

urban rural

labour market segmentation

informal formal

labour market segmentation

north east south west

labour market segmentation

mining

agriculture

manufacturing

commerce

services other than commerce

labour market segmentation

professional workers and managers

technicians and other skilled workers

semi-skilled workers

unskilled workers

labour market indicators

• population and labour force growth• labour force participation rates• education levels• per capita income data• income distribution data

labour market indicators

• employment and unemployment data• wages and earnings data• output growth data • labour productivity data• employment elasticities

employment policies

according to the ILO (C122): all measures aimed, directly or indirectly, at promoting full, productive and freely chosen employment for women and men

such as policies which contribute to:– sustainable economic growth– an equitable distribution of income– employment-intensive investment– equal opportunities for all– a healthier labour force– greater employability and adaptability– enhanced entrepreneurship– the better functioning of labour markets– ………………….

• the European Employment Guidelines call for concrete and urgent action along four lines:

– employability

– entrepreneurship

– adaptability

– equal opportunities

e.g. in the European Union:

employability

• making sure that people can develop the right skills to take up job opportunities in a fast changing world– active measures, e.g. training, as soon as

possible after becoming unemployed– special help for groups facing the greatest

difficulties in getting work, e.g.disabled people

– targets for life-long learning opportunities

entrepreneurship

• making it easier to start and run a business and to employ people in it – reforms in tax systems– cutting red tape

– training for small enterprises

adaptability

• developing new flexible ways of working to reconcile security and flexibility– new forms of employment and innovative

ways of work organisation

– making it easier and cheaper for companies to invest in training for their staff

equal opportunities

• equal access to jobs for women and men, equal treatment at work– the same training and support opportunities for

women and men to participate in the labour market on an equal footing

– active policies making it less difficult to combine working life with family responsibilities, and to return to the labour force after a long absence

employment and development

employment and poverty

the problem of poverty in developing countries is largely an employment problem: that of the working poor

no work means

no income, meanspoverty

not enough work means

not enough income, meanspoverty

low productivity means

low income, means

poverty

reducing poverty means:

achieving growth in output,

by increasing both the quantity

and the quality of labour inputs

reducing poverty means:

achieving growth in output,

by creating additional jobs

and raising productivity

O = +O

EE

increasing productive employment for women and men

more output more and better jobs

more productive workers

pertinent policies:

fiscal and monetary reform

removing trade restrictions

broadening access to credit

as well as access to technology

investing in infrastructure

more output

promoting the use of efficient, yet employment-intensive techniques

reallocating investment in favour of labour-absorbing sectors

targeting the disadvantaged

improving conditions for small and micro-enterprises

more and better jobs

education and training

heath and nutrition

appropriate technology

safety at work

more productive workers

the roots of poverty

• lacking sufficient (labour) income • lacking assets (valuable possessions) • inequality, discrimination• lacking a voice, lacking power• adverse shocks• lacking social protection

reducing poverty

as summed up by the ILO:

by promoting decent work:

– productive employment for all

– respect for fundamental rights at work

– social protection

– social dialogue

reducing poverty

creating an appropriate climate – peace and stability– social dialogue

taking pertinent policy decisions– sufficient “homework”– a comprehensive, coherent, integrated approach– political will and implementation capacity

addressing employment and income

– achieving high rates of sustainable growth– ensuring that growth is employment-intensive without

sacrificing productivity and efficiency– providing the poor greater access to employment – doing away with discrimination at work– raising productivity (income) of the working poor in

particular by addressing their (lack of) assets– increasing terms of trade for what the poor produce

reducing poverty

reducing poverty

addressing assets

– addressing asset inequalities, access to assets– boosting human capital: health, education, ...– investing in physical capital, infrastructure, ….– caring for natural assets: land, water, …..– allowing social assets to develop: networks, ...– broadening access to financial assets: credit, ...

reducing poverty

empowering the working poor

– respecting human rights and core labour standards

giving people a voice

– boosting representation and social dialogue

– providing for effective decentralisation

increasing social protection

– extending insurance schemes

– putting safety nets in place

employment policies