National Labor Market Institutions | Report

Added on -2019-09-25

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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 thatdeal with employment or wage determination such as legislation on minimum wages, labormarket policies, labor union, and employment protection (Herwartz, 2015). Labor marketinstitutions are considered highly responsible for high unemployment in various countries andpolicy discussions have mainly centered on the labor market reforms virtues that minimize theeffect of these institutions. In this report, we will study about the three types of labor marketinstitutions which came under government institutions. Government formulates various laborinstitutions to protect the rights of labor working in various government and non-governmentorganizations (Brinton, 2016). The three labor institutions are employment protection legislation(EPL), unemployment insurance (UI) and minimum wages (MW). One of the most importantthing about the modern macroeconomic theory is that perfectly competitive market build anefficient system of resources allocation. The economic history of labor market stated that thenational market institution is especially associated with recognizing the mechanisms that havefacilitated the allocation of labor effort in the economy at various times and understanding howthese mechanisms affected the allocation of labor in different epochs.Labor market institutions play an important role in the economy of the country. During policydiscussions, all the three national institutions are motivated by various arguments, which oftendepend on social protection reasons. Minimum wages institution play an important role inprotecting workers from bargaining power from being exploited by employers. Unemploymentinsurance mainly provides insurance facilities to different employees against loss of income1
during unemployment and employment protection legislation proves beneficial in preventingvarious arbitrary dismissals. All these three institutions play an important role in the life of anemployee. 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 democraticsocieties and suggests that they can easily receive the large support from the public and then theycan take various steps towards improving the welfare of voters (Ioannou, 2012). But it isconsidered that till now welfare rationale for the institutions is not so clear from the viewpoint ofeconomic analysis. An influential view of the government towards institutions is that theminimum wages are mainly responsible for minimizing economic efficiency by creatinginvoluntary unemployment or enhancing cost associated with labors. From this, it can be saidthat most of the EPL analysis consider simple and common economic analysis which play animportant role in enhancing the popularity of national institutions. Analysis conducted by UIfocused 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 helpfulin 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 beunderstanding though traced the way back to the eighteenth century. Most of the UI and MWdebates motivated by innovation in research and debates. This will influence the EPL took off in1990 which ultimately affects the unemployment rate of employees (Kerrissey, 2016). There area number of journals published on the importance of national institution over the currentdecades. The following table represents some quantitative information on the researchmagnitudes of UI, MW, and EML which depicts the importance of these institutions:Table 1: Research Data on labor market institution related to importance level, 1961-2015.2

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