| dc.description.abstract | Labor market institutions (LMI hereafter) mainly refers to policies such as unemployment insurance, employment protection legislation, union density, taxwedge (gap between nominal and take-home payment), active labor market program and wage bargaining coordination. Theoretically, labor market rigidity is an intervention that puts pressures on the labor market. For instance, stricter LMI exert upward pressure on wages in spite of excess labor supply in the labor market, and slow down unemployed job-matching, which hinders the adjustment of labor demand and supply towards the equilibrium. Furthermore, inadequate LMI pushing up labor costs could even burden the finances of a country, cripples the inflows and outflows of the labor market, further deteriorates unemployment problems, and slows productivity , ultimately hence deminishing, the output and economic growth.
Labor market institutions turn to labor market rigidity by the following channels. A Generous unemployment benefits discourages job search and extends the duration of unemployed while strict employment protection legislation raises the hiring and firing costs that undermines employers’ incentive to create new jobs. Moreover, higher union power may give workers more bargaining power over wage determination, however, if the wage is not able to match productivity, firms would determine employment in accordance with their profits. Taxwedge is the gap between take-home pay and nominal wage. Thus, the larger the gap is, the lower the workers’ incentive to participate in the job market.
Chapter 3 revisits the connection between LMI and the unemployment rate in Europe. This paper examines the dynamic relationship between labor market rigidities and the unemployment problem in Europe between 1985 and 2007, and also explores the specific labor market institutions that might deteriorate unemployment problem. We employed country-level panel data, and applied the Vector Autoregression (VAR) model as our methodology which has the advantage of investigating the causal relationships among variables. The empirical results provide evidence of a causal relationship between labor market rigidities and the unemployment rate in European countries. The essential element determining whether a country has been successful or has failed in resolving the unemployment problem in the 1990s is the existence of causality between labor market rigidity and the unemployment rate. What contributes to the existence of the causal relationship is the design of the labor market reforms, particularly the design of active labor market program.
With the increments of labor market institutions, the potential problem caused by labor market rigidity is emerging within the four Asian tigers, namely, Hong Kong, South Korea, Singapore and Taiwan. Chapter 4 emphasizes the impact of labor market rigidity on economic performance in the four Asian tigers over the 1980-2010 period. Through the estimation of the aggregate production function, we find that labor market rigidity has a negative impact on output and economic growth. On the other hand, without imposing any labor market institutional adjustment that would lower the standard of labor conditions, the rises in country’s competitiveness can serve as a balancing force to mitigate the negative impacts of labor market rigidity. A crucial insight for policymakers is to determine the most efficient method for giving labor effective protection without hurting economic performance.
Chapter 5 investigates the impact of LMI on labor demand elasticity in Taiwan, where the non-wage cost (NWC) has presented a persistent upward trend. This study proposes a two-step estimation. In the first step we consider the NWC effect on wage determination and predict the wage rate. In the second step labor demand elasticity is estimated with the predicted wage rate included as one regressor. Empirically, this study found that the labor demand elasticity would be over-estimated if non-wage cost and its endogeneity were excluded from the estimation. Second, the non-wage wage cost tradeoffs indicates that the increase in the NWC would slow down the wage growth. Third, a crucial finding is that the labor demand elasticity is much higher in Taiwan than indicated in past studies when testing over a longer timeframe and for firms with higher foreign exposure. As such, the adverse effects of higher wage elasticity, the erosion of workers’ bargaining power over output share, and the NWC burden sharing would damage the Taiwan labor market. Given the higher labor-demand elasticity and the growing NWC, this paper explores the reasons why the economy developed while wages stagnated and the unemployment rate deteriorated over the past two decades in Taiwan. | en_US |