Wage and employment policies in Czechoslovakia

Czechoslovakia (CSFR) faces marked challenges for successfully accomplishing its transition to a market economy. In recent years the economy was characterized by a good deal of internal and external equilibrium, making possible the current market oriented reforms without the complications which arise from a complex stabilization program. However, the present administration is contending both with the distorted allocation of resources and a rigid regulatory framework left by the old system; these have created potential impediments to the success of reform measures. Labor market reforms in both the short and long term represent a dramatic change from the past, and a key challenge for designing programs and attaining political stability. In the short run, proper labor market policies play a central role in preventing an inflationary spiral. In the longer term, CSFR, like all other Eastern European countries in economic transition, faces the challenge of designing an appropriate institutional framework for the labor market. Unemployment will be a normal byproduct of market allocation as persons flow between jobs, necessitating an unemployment insurance system along with policies and institutions aimed at easing the friction incurred with intersectoral labor mobility. Similarly, wage setting mechanisms must be instituted, possibly through collective bargaining.Economic Theory&Research,Labor Markets,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management

Measuring the impact of minimum wage policies on the economy

This paper undertakes a statistical analysis of the effect of minimum wages (MWs) on different population groups. The underlying question for this analysis relates to the probability bias exerted by certain protective government regulations in terms of the unemployment prospects of specific groups. Several cross-sectional data and a standard human capital model corrected for selectivity bias are used to analyze the case of Chile, where high structural unemployment has been a remarkable feature of the 1970s and 1980s. The main conclusions show that the coverage of the MW is more significant for the young and the less educated, and there exists a negative relationship between human capital stock and actual coverage of MWs. It is also shown that previous statistical analysis of this issue, both in the case of Chile and in industrial countries may have underestimated the negative impact of MWs because they do not correct for selectivity bias.Environmental Economics&Policies,Economic Theory&Research,Labor Markets,Banks&Banking Reform,Poverty Assessment

Efficiency wage theory, labormarkets, and adjustment

Conventional labor theory argues that wages are determined by the interaction of labor supply and demand. Policy analysis on wage rigidity has emphasized distortions arising from exogenous intervention. One emphasis in adjustment lending has been deregulation of labor markets. Efficiency wage models of unemployment try to explain persistent real wage rigidities when unemployment persists. Their central assumption is that higher real wages can improve labor productivity. A major implication of these theories is that wages (and hence labor markets) may be unresponsive to typical macroeconomic policies that seek to lower real wages, change resource allocation, and reduce open unemployment. The three central macroeconomic implications of efficiency wage theory are : 1) there is an equilibrium"natural"level of open unemployment, which differs among groups in the labor force and cannot be affected by demand management policies; 2) when reducing the level of production, the typical firm will resort to laying off labor instead of reducing wages, thereby introducing a significant wage inertia and an overshooting of open unemployment; and 3) wages do not respond to clear the labor market and are not responsive to macroeconomic policies and microeconomic deregulation. The authors conclude that applying the theory in developing countries requires suitably defining labor costs and tackling the problem of segmentation of the labor market.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Municipal Financial Management,Youth and Governance

Argentina's labor markets in an era of adjustment

The current economic crisis in Argentina is only partly the result of inappropriate domestic policies to cope with the recent external shocks. Years of inappropriate policies have damaged Argentina's economy. Even if no external shocks had occurred, the country would still have to change the structure of production. Argentina has had trouble sustaining a program of structural adjustment. Its experiences provide policymakers with some lessons in designing a sustainable program to achieve price stability and change the incentive system : a) macroeconomic and trade policies must be consistent; b) labor relations and labor market institutions must be changed including the decentralization of wage bargaining and the elimination of traditional wage policies and general government intervention; c) rigidities and restrictions on labor mobility must be eliminated, leading to less pervasive government intervention in the form of restrictive regulations and spending patterns; and d) public spending must be profoundly changed to reduce social costs during the transition period.Economic Stabilization,Banks&Banking Reform,Municipal Financial Management,Environmental Economics&Policies,Economic Theory&Research

Macroeconomic adjustment and the labor market in four Latin American countries

Implicit in standard macroeconomics of adjustment is the assumption of well-integrated labor markets that are responsive to relative prices. But segmentation of the labor market is usually said to be an important source of labor market rigidities. In particular, if segmentation involves different degrees of real wage rigidity among different groups in the labor force, nominal devaluation may be ineffective and inequitable in its impact. This paper uses a model of labor market segmentation in which regulations are necessary to distinguish between the formal and informal sectors. Using standard econometric techniques to estimate four simultaneous equations, the authors examine the effect of devaluation on relative wages in four countries. They found that formal wages are more responsive than informal wages to inflation and that devaluation of the exchange rate, by increasing the wage gap, is a source of sluggish labor mobility. In addition, they found that expanding wage differentials during adjustment imposes a greater burden on the poorest workers, making adjustment policies less politically sustainable. Finally, they found evidence to support the hypothesis that nominal devaluation would probably be ineffective with a segmented labor market.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Labor Markets,Health Economics&Finance

Adjustment and the labor market

How has the labor market responded to changes in macroeconomic conditions and related government policies? And to what extent has government intervention affected the microeconomic functioning of the labor market. Geographical immobility of workers does not seem to hinder adjustment. Labor is increasingly deployed in nontradables and import competing sectors, however, and problems of mobility between tradables and nontradables are reported. In addition, shortages of skilled manpower are reported. There is little evidence of wage resistence where wage indexation is not institutionalized. Traditional methods of wage support have become less important in the past two decades. Where effective minimum wage policies exist, they have the expected distortionary effects. Wage differences between the public and private sectors, particularly in sub-Saharan Africa, have continued to widen, and the efficiency of the public sector has declined as a result. Job security regulations may be an obstacle to structural adjustment programs insofar as they hinder the release of labor from contracting sectors.Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research,Health Economics&Finance,Poverty Assessment

Educación y Estado: La Necesidad de un Marco Conceptual para Abordar un Problema de País

Versión completa de la exposición del Rector de la Universidad de Chile en la primera sesión de "Diálogos Universitarios: Conversaciones sobre Estado y Educación Pública en el Chile de Hoy". Es casi una costumbre abordar los problemas del ámbito de la Educación, particularmente aquellos que dicen relación con el rol que debiera cumplir el Estado, asimilándolos con un bien que se transa libremente y respecto del cual la sociedad puede elegir entre una mayor o menor ingerencia del mercado. Esta tendencia ideológica se asocia al conjunto de reformas aplicadas sobre el Estado, particularmente con relación a su tamaño y al ámbito de acción en forma consonante con una tendencia privatista que ha ido avanzando en todo el mundo. Ello ha correspondido a giros efectuados en las tendencias políticas y económicas de la postguerra, destinados a afianzar el logro de un mayor crecimiento, estabilidad y democratización económica y a rescatar la necesidad de una mayor ingerencia privada en las decisiones económicas y, eventualmente, restaurando un Estado más fuerte en ámbitos en los que éste no resulta reemplazable