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Labour Market Policies: Theoretical Background

Author: A Abrahart and P Verme
Date: 2001
Size: 54 pages (2,698 KB)

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Summary

Labour market policies (LMPs) are key elements of social protection strategies (defined as policies and programmes that aim to reduce poverty and vulnerability). But do LMPs actually facilitate social protection? This paper by the Asian Development Bank reviews LMPs in the context of social protection, drawing on experiences in Asia. Designing LMPs to contribute to social protection implies a shift in orientation from addressing labour market problems to a more comprehensive approach.

LMPs can be categorized into the Japanese, European and American models based on their conceptual approaches. They can also be classified into labour demand and labour supply policies depending on which side of the labour market is targeted. Labour demand policies target enterprises and cover schemes like apprenticeship programmes. Labour supply policies include public works and microfinance schemes. An important concern in designing LMPs is the segmentation of labour markets into different sectors such as public and private, urban and rural, formal and informal and economic (primary, tertiary and secondary). Other significant factors to consider when designing LMPs include gender equality, crisis management and financing.

LMPs in most Asian countries do not resemble any particular model, although some countries have been influenced by the Japanese model. The primary objective of LMPs in Asia is to address labour market problems, not social protection. Other relevant features of LMPs inAsia are:

• They have focused on reducing high labour market segmentation.
• Labour legislation can be either too much or too little. Regulation and enforcement of legislation, particularly related to human rights, is low.
• Perceptions on wage determination issues, like the minimum wage, depend on the circumstances of individual countries.
• There is a disparity between education systems and the needs of the labour market.
• Public works and microfinance are widely used. Microfinance schemes have a longer-term impact on poverty reduction than public works, but they require careful implementation.
• Labour migration is a significant phenomenon in many countries. The main reason for migration is lack of good employment opportunities.

LMPs that aim to contribute to social protection need to shift away from a focus on improving labour market flexibility and human capital and adopt a more comprehensive approach. This implies identifying new target groups and specific segments (such as the rural and informal sector) that require social protection. LMPs that facilitate social protection strategies need to consider several issues:

• More financial resources are required to target new groups. Organisations responsible for LMPs also need to be equipped with adequate skills to manage new target groups.
• Labour legislation relating to human rights urgently needs to be regulated and enforced.
• Wage determination should be evaluated in the country context, with the objective of maximizing economic returns while minimizing income inequality.
• The educational system needs to be more relevant to labour demand. A proper system of vocational education is required, involving both the government and the private sector.
• Labour exchanges are important for matching labour demand and supply while also protecting vulnerable individuals like the unemployed.
• Adequate social protection schemes are required for migrants, who are among the most vulnerable groups in society.

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Source: Abrahart, A. and Verme, P., 2001, ‘Labour Market Policies: Theoretical Background’, Chapter 2 in Social Protection in Asia and the Pacific, ed. Ortiz, I., Asian Development Bank, Manila