Does Labor Market Rigidity Matter for Economic Performance? Evidence from the Four Asian Tigers

Huang, Li-Hsuan and Huang, Julia Hsin-Yi (2013): Does Labor Market Rigidity Matter for Economic Performance? Evidence from the Four Asian Tigers. Published in: Korea Observer , Vol. 44, (October 2013)

Abstract

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. This study 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labor market rigidity, output, economic growth, four Asian tigers, openness, international competitiveness.
• Subjects: J - Labor and Demographic Economics > J0 - General; J - Labor and Demographic Economics > J0 - General > J08 - Labor Economics Policies

References

Arellano, Manuel, and Olympia Bover. 1995. Another Look at the Instrumental Variable Estimation of Error Component Models. Journal of Econometrics 68:29–51.

Barro, Robert J., N. Gregory Mankiw, and Xavier Sala-I-Martin. 1995. Capital Mobility in Neoclassical Models of Growth. The American Economic Review 85(1):103-115.

Blanchard, Olivier, and Justin Wolfers. 2000. The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence. Economic Journal 110:l-33.

Betcherman, Gordon, and Rizwanul Islam. 2001. East Asian Labor Markets and the Economic Crisis: Impacts, Responses and Lessons. Washington, D.C: World Bank.

Bleaney, Michael, and Akira Nishiyama. 2002. Explaining Growth: A Contest between Models. Journal of Economic Growth 7(1):43-56.

Barro. Robert J., and Xavier Sala-i-Martin. 2004. Economic Growth. The MIT Press.

Besley, Timothy, and Robin Burgess. 2004. Can Labor Regulation Hinder Economic Performance? Evidence from India. The Quarterly Journal of Economics 119(1):91-134.

Bloom, David E., David Canning, and Sevilla, Jaypee. 2004. The Effect of Health on Economic Growth: A Production Function Approach. World Development 32:1–13.

Baltagi, Badi H. 2008 Econometric Analysis of Panel Data. Wiley press.

Bloom, David E., David Canning, Linlin Hu, Yuanli Liu, Ajay Mahal, and Winnie Yip. 2010. The Contribution of Population Health and Demographic Change to Economic Growth in China and India. Journal of Comparative Economics 38:17–33. Bond, Steve, Asli Leblebicioglu, and Fabio Schiantarelli. 2010. Capital Accumulation and Growth: A New Look at the Empirical Evidence. Journal of Applied Econometrics 25:1073–1099.

Caselli, Francesco, Gerardo Esquivel, and Fernando Lefort. 1996. Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics. Journal of Economic Growth 1(3): 363-389.

Crafts, Nicholas. 2006. Regulation and Productivity Performance. Oxford Review of Economic Policy 22(2):186-202.

Fields, Gary S. 1994. Changing Labor Market Conditions and Economic Development in Hong Kong, the Republic of Korea, Singapore, and Taiwan, China. World Bank Economic Review 8(3):395-414.

Hornstein, Andreas, and Per Krusell. 2005. The Effects of Technical Change on Labor Market Inequalities. Handbook of Economic Growth 1(b):1275–1370.

Hasan, Rana, Devashish Mitra, and K.V. Ramaswamy. 2007. Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India. The Review of Economics and Statistics 89(3):466-481.

Kim, Dae-Il, and Robert H. Topel. 1995. Labor Markets and Economic Growth: Lessons from Korea’s Industrialization, 1970-1990. Differences and Changes in Wage Structures. Chicago and London: University of Chicago Press, pp. 227-64.

Kuruvilla, Sarosh, Subesh Das, Hyunji Kwon and Soonwon Kwon. 2002. Trade Union Growth and Decline in Asia. British Journal of Industrial Relations 40(3):431-461.

Loayza, Norman V., Ana Maria Oviedo, and Luis Serven. 2005. Regulation and Macroeconomic Performance. World Bank Policy Research Working Paper No. 3469.

Mortensen, Dale T., and Christopher A. Pissarides. 1999. Unemployment Responses to ‘Skill-Biased’ Technology Shocks: The Role of Labor Market Policy. Economic Journal 109:242-265.

Nickell, Stephen and Kevin Denny. 1992. Unions and Investment in British Industry. Economic Journal 102:874-887.

Nickell, Stephen. 1997. Unemployment and Labor Market Rigidities: Europe versus North America. Journal of Economic Perspectives 11:55–74.

Nickell, Stephen. 1998. Unemployment: Questions and Some Answers. Economic Journal 108:802-816.

Nickell, Stephen, and Richard Layard. 1999. Labor Market Institutions and Economic Performance. Handbook of Labor Economics 3(C):3029-3084.

Nickell, Stephen. 2003. A Picture of European Unemployment: Success and Failure. CEP Discussion Papers No. 502.

Nickell, Stephen, Luca Nunziata, and Wolfgang Ochel. 2005. Unemployment in the OECD since the 1960s. What Do We Know? Economic Journal 115:1-27.

Narayan, Seema, Paresh Kumar Narayan, and Sagarika Mishra. 2010. Investigating the Relationship between Health and Economic Growth: Empirical Evidence from a Panel of 5 Asian Countries. Journal of Asian Economics 21:404–411.

Rodrik, Dani. 1997. Has Globalization Gone Too Far? Washington, DC: Institute for International Economics.

Topel, Robert. 1999. Labor Markets and Economic Growth. Handbook of Labor Economics 3(C):2943-2984.

Wang, James W. Y. 2010. The Political Economy of Collective Labour Legislation in Taiwan. Journal of Current Chinese Affairs 39(3):51-85.