What is the evidence of the impact of labour-market regulation on poverty?

Rationale

The impact of labour-market regulation is a much debated topic and has been found to have both positive and negative effects on workers and employment performance. On the one hand, higher levels of regulation and employment protection can improve the security and prospects of workers, for example through enhancing workers’ welfare and improving employment conditions and through a greater likelihood that employers will invest in training when their employees are permanent. On the other hand, a high level of regulation which offers security to current and permanent employees may be to the detriment of both temporary workers and groups with a weaker position in the labour market eg, younger workers and new labour-market entrants. High levels of protection may also make it more difficult for employers to adapt to rapidly changing market conditions, in turn hindering the creation of new employment opportunities.

Evidence

  • There is relatively little evidence which directly studies the link between labour market regulation and poverty.
  • Using OECD data, Siebert (2005) has linked high levels of labour-market regulation to ‘fewer, higher productivity jobs' and the exclusion of more people from the labour market as it tends to restrict employment to within a narrower age range, and lengthens unemployment spells.
  • Analysis across OECD countries (OECD, 2004) finds links between their measure of EPL (Employment Protection Legislation) and employment rates for specific groups eg, a negative link between strict EPL and the employment rates of young people and women.
  • In contrast, O'Higgins' (2012) study of the effects of the recent recession on young people's labour market experiences across the EU found 'that labour market flexibility contributed significantly to the negative consequences felt by young people'. Through applying both cross-section and time series rolling regression models the study suggests that the youth employment loss arising from the recession was reduced in countries with stronger employment-protection legislation.

Gaps

There are many evidence gaps on the impact of labour market regulation on poverty.

We are seeking any evidence that directly studies the link between labour market regulation and poverty, either in the UK or elsewhere.

Return to call for evidence introduction