Do labour market institutions and
policies matter?
Alena Nesporova
Deputy Regional Director for Europe
and Central Asia, ILO Geneva
Structure of presentation
• Major labour market challenges
• Changes in labour market institutions and
policies
• Is employment protection legislation rigid?
• Impact of EPL on labour market outcomes
• Do labour market institutions and policies
matter?
• Policy conclusions
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Major labour market challenges
• Despite solid economic growth after 2000
employment declining in half of the
countries of the region
• High un- and/or underemployment
• Increasing incidence of flexible forms of
employment
• High informal employment
• Significant labour market segmentation
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Changes in labour market
institutions and policies
• Liberalization of employment protection
legislation (EPL)
• Protection through collective bargaining low due
to low coverage by collective agreements
• Membership in trade unions varies by country but
their members’ protection and policy making
capacity is rather low in most countries
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EPL strictness index (2007)
Country
Albania
Azerbaijan
Bulgaria
Kazakhstan
EPL
2.1
2.2
1.9
1.5
Country
Serbia
Turkey (2003)
Ukraine
EU-14 (without
Luxembourg) (2003)
EPL
2.2
3.7
2.3
2.4
Moldova
Romania
Russian Feder.
2.5
3.0
1.9
Greece
New EU-8 (2003)
Black Sea
2.8
2.2
2.4
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Changes in labour market
institutions and policies (cont.)
• Public employment services established but remained
weak; in some countries merged with other institutions and
de facto disappeared or were decentralized
• Unemployment benefit schemes poor in terms of coverage,
replacement rates and length of payment
• Increasing emphasis on activation of labour market
policies but significant differences among countries in
types of policy, their efficiency and access to them.
• In general spending on LMP in % GDP significantly lower
than in EU-15.
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Changes in labour market
institutions and policies (cont.)
• Labour taxation as % of wages declining
but remains very high in many countries
compared with EU-15
• In sum, weakening of workers’ protection at
workplace vaguely compensated by
protected move to new jobs through income
support in unemployment, broader access to
ALMP or better job mediation by PES.
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Impact of EPL on LM outcomes in
Central and Eastern Europe
• Conclusions of bivariate analysis (late 90s)
– Stricter EPL contributes towards lower labour mobility
– Stricter EPL tends to be associated with higher
temporary employment and longer average job tenure.
It seems to increase insider/outside segmentation
– No impact of stricter EPL on unemployment
(aggregate, youth, long-term)
• Conclusions of bivariate analysis (2003)
– EPL continues to have no impact on unemployment and
has lost impact on labour dynamics.
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Do labour market institutions and
policies matter?
Finding from multivariate analysis (late 90s):
• No statistically significant impact of EPL on the
aggregate, long-term and youth unemployment
rates in CEE countries.
• Significant impact of EPL on employment and
participation; in CEE countries results indicate
that more protection/better law enforcement could
contribute towards better labour market outcomes.
• Labour market outcomes improved by collective
bargaining and ALMPs.
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Do labour market institutions and
policies matter?
Finding from econometric analysis (2003):
• EPL strictness has no impact on the aggregate, long-term
and youth unemployment rates
• Labour market institutions that matter: ALMPs have
positive and labour payroll taxes negative effect on
economic activity and employment. ALMPs contribute
towards reducing and high labour taxes towards increasing
unemployment.
• Youth and long-term unemployment negatively correlated
with trade union density while long payment of UB
increases youth and long-term unemployment and reduces
economic activity and employment.
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Policy conclusions
• CEECA countries face a combination of high
flexibility and low security, therefore the security
side should be strengthened.
• In general no need to further liberalize EPL in
most countries but to improve its enforcement.
• Collective bargaining at all levels needs
strengthening through more effective mechanisms
and capacity building of social partners.
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Policy conclusions (cont.)
• Reduction of high payroll taxes and shifting of some social
expenditure to general taxation should be considered.
• Need for further activation of labour market policy through
capacity building of public employment service, widening
of access to training and other ALMP but also decent
income support during job search period combined with
incentives for workers to take up jobs, and proper
monitoring and evaluation of ALMP to improve their
efficiency.
• Need to address the challenge of low employment intensity
of growth and boost demand for labour through balanced
macroeconomic policy combined with effective
employment and labour market policies.
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