National Labor Market Institutions Report

This report assesses the claim that national labor market institutions are no longer very important. It examines three key institutions: employment protection legislation (EPL), unemployment insurance (UI), and minimum wages (MW). The report argues against this claim, highlighting the role of these institutions in protecting workers' rights, providing social safety nets, and influencing macroeconomic outcomes. While acknowledging criticisms regarding efficiency and potential negative impacts, the report emphasizes the continued relevance and importance of these institutions in shaping labor markets and promoting worker welfare. The report supports its arguments with data from various research studies and publications, demonstrating the ongoing debate and research surrounding these institutions and their impact on various economic indicators.

National Labor Market Institutions

Topic: Assess the claim that 'national labor market institutions
are no longer very important.'
Labor market institutions are considered as collective organizations and policy interventions that
deal with employment or wage determination such as legislation on minimum wages, labor
market policies, labor union, and employment protection (Herwartz, 2015). Labor market
institutions are considered highly responsible for high unemployment in various countries and
policy discussions have mainly centered on the labor market reforms virtues that minimize the
effect of these institutions. In this report, we will study about the three types of labor market
institutions which came under government institutions. Government formulates various labor
institutions to protect the rights of labor working in various government and non-government
organizations (Brinton, 2016). The three labor institutions are employment protection legislation
(EPL), unemployment insurance (UI) and minimum wages (MW). One of the most important
thing about the modern macroeconomic theory is that perfectly competitive market build an
efficient system of resources allocation. The economic history of labor market stated that the
national market institution is especially associated with recognizing the mechanisms that have
facilitated the allocation of labor effort in the economy at various times and understanding how
these mechanisms affected the allocation of labor in different epochs.
Labor market institutions play an important role in the economy of the country. During policy
discussions, all the three national institutions are motivated by various arguments, which often
depend on social protection reasons. Minimum wages institution play an important role in
protecting workers from bargaining power from being exploited by employers. Unemployment
insurance mainly provides insurance facilities to different employees against loss of income
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during unemployment and employment protection legislation proves beneficial in preventing
various arbitrary dismissals. All these three institutions play an important role in the life of an
employee. So, it is not perfect that labor market institutions are no longer important in the world.
The main fact behind it is that the labor market institutions mainly established in democratic
societies and suggests that they can easily receive the large support from the public and then they
can take various steps towards improving the welfare of voters (Ioannou, 2012). But it is
considered that till now welfare rationale for the institutions is not so clear from the viewpoint of
economic analysis. An influential view of the government towards institutions is that the
minimum wages are mainly responsible for minimizing economic efficiency by creating
involuntary unemployment or enhancing cost associated with labors. From this, it can be said
that most of the EPL analysis consider simple and common economic analysis which play an
important role in enhancing the popularity of national institutions. Analysis conducted by UI
focused mainly on identifying moral hazard issues arises by different job search responses.
Analysis of these issues helps the government to resolve these on a timely basis which is helpful
in maintaining the importance of national institutions in the eyes of the government.
It can be noted that UI and MW have been debated for a century and this discussion can be
understanding though traced the way back to the eighteenth century. Most of the UI and MW
debates motivated by innovation in research and debates. This will influence the EPL took off in
1990 which ultimately affects the unemployment rate of employees (Kerrissey, 2016). There are
a number of journals published on the importance of national institution over the current
decades. The following table represents some quantitative information on the research
magnitudes of UI, MW, and EML which depicts the importance of these institutions:
Table 1: Research Data on labor market institution related to importance level, 1961-2015.
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Year MW UI EPL
1961-1970 .10 .19 .02
1971-1980 .12 .22 .06
1981-1990 .11 .14 .08
1991-2000 .17 .15 .05
2001-2010 .05 .14 .04
2011-2015 .17 .22 .09
One of the important legislation of national institutions is minimum wages. It was introduced in
1894 which followed by Australia in 1896, and the UK in 1910 and onwards (Levi, 2015).
Minimum wage legislation is proved very beneficial for the employees. The efficiency of
minimum wages mostly depends on the type of market. It can be better for society and workers if
a minimum wage is able to secure a higher employment and wage level in a monopsony market.
Furthermore, the disadvantages of wage rigidity can be removed by determining the minimum
wage level. Most of the studies show that a minimum wage helps minimize labor turnover and
maintain the efficiency of the organization. At all, it can be said that a minimum wage proves
very beneficial for the rights of employees which ultimately develop the economy of the country.
Various researches conducted on minimum wages has mainly focused on its employment effects
(Bhorat, 2014). These involve the influence on income and wage, prices, productivity, inequality,
and profits. Higher wages leads high living standards of people of a county. While the low-wage
influence the peoples in a larger context which brings inequality and poverty in the country. So,
it can be said that minimum wage rate should be fixed by every country to enhance and maintain
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GDP rate of the country. This will help in enhancing the development of the economy in an
efficient manner.
Another main important legislation of national government institution is Unemployment
Insurance. It's objective, and profitability can be judge by its name. Various developed countries
have formulated unemployment insurance as an important part of their welfare institutions
(Roberts, 2015). Most countries are currently engaging in debating on the profitability of
unemployment insurance. Various researchers conclude that UI may bring various cyclical
changes in unemployment rates of a country. It is also known as unemployment compensation. It
is considered as social welfare payments made by the authorized body or the state to unemployed
people. The amount of insurance depends on upon the status of the person. It is covering only the
basic needs of people. It motivates people by providing them sufficient monetary resources.
Through this people came forward in search of employment for living their desired lifestyle.
Thus, from all this, we can say that unemployment insurance is an important government
national institution which promotes the interest of individuals to come forward and perform
something innovative (Neumark, 2015). It is often considered that the welfare economics of UI
has become an important and most demanding area. It plays an important role in monitoring,
workfare, sanctions and private savings.
The last and main important legislation of national government institution are employment
protection legislation. From the last some decades it is becoming the most debated legislation.
All these debates motivate researchers to conduct in-depth research to identify all important
factors related to the employment protection legislation (Card, 2015). EPL is considered the
combination of different dimensions which includes laws related to advance notification of
layoffs, restrictions related to the selection of whom to layoff during collective dismissal, and
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restrictions on reasons for worker dismissals. All rules regarding EPL motivated by a desire to
give full employment protection to employees from job losses and its costs. It influences the
labor costs either directly or indirectly through costs of red tape linked with procedural
inconveniences or induced wage hikes. Employment protection legislation positively influences
the duality of the labor market, unemployment rate, employment rate, wage system, efficiency
and profit level of organization, on product market regulation, and on hours per worker. It is
considered very important for the employees because it provides workplace security and
protection to them. In most of the countries, employees operate under master-servant
relationship. It is expected that employees, the servant should perform all their obligations
significantly under the supervision of a master, the employer. If employees don't perform their
obligation, efficiently they are abused by their seniors (Schmieder, 2012). EPL saves the
employees from their exploitation by the masters. It is mainly focusing on balance out the
relationship of master-servant so that the employer does not discriminate or abuse their
employees. In addition, it is mainly established to ensure that all individuals have provided the
same opportunity to enter into a master-servant relationship. The main rule of this legislation
related to the capitalism is that all business people have the opportunity to engage in their own
business that could bring profits. Thus, we can say that all labor laws of this act mainly emphasis
on protecting the rights of the employee which proves helpful in enhancing the motivation level
of employee.
After studying all this, it can be concluded that it is not true that national institutions have no
importance nowadays. Labor institutions play an important role in providing the efficient and
safe environment to employees which enhance their motivation level. Due to increasing their
motivation, they will like to perform more efficiently which ultimately enhance the profits of the
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organization and GDP of the country will also increase. There is high tendency of profitability of
national institutions. Conducted research on labor market institutions proves helpful in
measuring the impacts of national institutions on national productivity. UI research provides us a
suitable analysis regarding the welfare of a country which probably positively influences the
application of necessary policies (Banker, 2013). There are many national institutions which are
related to the labor market. Influence of some national institutions on employees are difficult to
define while some are easy. Countries utilize the labor market institutions as per their choice like
in Germany and Sweden labor institutions are formulated to provide job security to employees
while other countries developed national institutions to favor job creation and rely on the market
instead of providing protection to employees. We can say that research conducted in this area
provide significant information about the importance of national institutions. It can be said that if
bargaining on labor markets is efficient, most of the organizations are able to earn high profits
and any other market institutions do not able to influence the aggregate efficiency of the
organizations. It is necessary for the government to take suitable steps for identifying different
barriers existing in the labor market. If these existing barriers are identified in a suitable manner,
the government is able to maintain the profitability of national institutions. Thus from this, we
can say that there is a strong relationship between the national labor institutions and employees
protection (Nicolitsas, 2016). Institutions are considered difficult to define, and measure because
their influence changes rapidly as change the environment. We found that the labor market
enjoys more freedom after formulation of national institutions. However, we can say that
national institution plays a vital and effective role in securing the rights of employees.
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References
Herwartz, H., & Niebuhr, A. (2015). Regional Labor Market Performance in Europe Error
Correction Dynamics and the Role of National Institutions and Local Structure. International
Regional Science Review, 0160017615603577.
Brinton, M. C., & Lee, D. J. (2016). Gender‐Role Ideology, Labor Market Institutions, and Post‐
industrial Fertility. Population and Development Review, 42(3), 405-433.
Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of
nation-level institutions. Journal of International Business Studies, 43(9), 834-864.
Kerrissey, J., & Schuhrke, J. (2016). Life Chances: Labor Rights, International Institutions, and
Worker Fatalities in the Global South. Social Forces, 95(1), 191-216.
Levi, M., Melo, T., Weingast, B. R., & Zlotnick, F. (2015). Ending a Century of Violent Labor
Conflict: A New Perspective on Unionization and the National Labor Relations Act.
Roberts, A. J. (2015). The Embedded Economy and National Income Inequality: A Cross-
National Analysis of Production Globalization and Labor Market Institutions.
Nicolitsas, D. (2016, June). The Role of Labor and Product Market Institutions Leading up to the
Greek Crisis. In 28th Annual Meeting. Sase.
Neumark, D., & Wascher, W. (2015). The effects of minimum wages on employment. FRBSF
Economic Letter, 2015, 37.
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Bhorat, H., Kanbur, R., & Stanwix, B. (2014). Estimating the Impact of Minimum Wages on
Employment, Wages, and Non-wage Benefits: The Case of Agriculture in South
Africa. American Journal of Agricultural Economics,96(5), 1402-1419.
Card, D., Johnston, A., Leung, P., Mas, A., & Pei, Z. (2015). The Effect of Unemployment
Benefits on the Duration of Unemployment Insurance Receipt: New Evidence from a Regression
Kink Design in Missouri, 2003–2013. The American Economic Review, 105(5), 126-130.
Schmieder, J. F., von Wachter, T. M., & Bender, S. (2012). The effects of extended
unemployment insurance over the business cycle: Evidence from regression discontinuity
estimates over twenty years (No. w17813). National Bureau of Economic Research.
Banker, R. D., Byzalov, D., & Chen, L. T. (2013). Employment protection legislation,
adjustment costs and cross-country differences in cost behavior.Journal of Accounting and
Economics, 55(1), 111-127.
Kruppe, T., Rogowski, R., & Schömann, K. (2013). Labour market efficiency in the European
Union: Employment protection and fixed term contracts. Routledge.
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