The political economy of labor market deregulation during IMF interventions

Abstract

This study examines the relationship between policy interventions by the International Monetary Fund (IMF) and de jure labor rights. Combining two novel datasets with unprecedented country-year coverage-leximetric data on labor laws and disaggregated data on IMF conditionality-our analysis of up to 70 developing countries from 1980 to 2014 demonstrates that IMF-mandated labor market policy measures significantly reduce both individual and collective labor rights. Once we control for the effect of labor market policy measures, however, we find that collective labor rights increase in the wake of IMF programs. We argue that this result is explained by the impact of union pressure on governments which, in such a context, are imbued with the policy space to respond to domestic interest groups. The study has broader theoretical implications as to when international organizations are effective in constraining governments' choices.

IMF = I’M Fired! IMF Program Participation, Political Systems, and Workers’ Rights

“…Our baseline expectation with regard to labor market conditionality's effect on workers' rights closely match with those of the recent studies: the more labor conditions a program includes, the more adversely worker rights are affected by the program (Reinsberg et al, 2019;Stubbs and Kentikelenis, 2018). Commonly utilized labor conditions include restrictions on public sector wage levels, public sector employment levels, privatization of state-owned enterprises, private sector minimum wages, other kinds of private sector wage restraint, social security, public pension, labor market flexibility, and collective bargaining decentralization (Caraway et al, 2012).…”

“…For instance, labor market deregulation, public sector wage restrictions, and privatization and reform of state-owned enterprises all directly hurt labor rights (Stubb and Kentikelenis, 2018). Similarly, Reinsberg et al (2019) demonstrate that labor conditions significantly reduce both individual and collective labor rights, taking into account the endogenous nature of an IMF program and its conditionality.…”

Does Central Bank Independence Increase Inequality?

“…An often applied policy response to these challenges is to remove labor market frictions that prevent a smooth adjustment (in terms of a downward correction of wages). Given that labor reforms are extremely unpopular (Reinsberg et al, 2019), policymakers often opted for social pacts that entailed clauses on wage restraint and piece-meal labor reform provisions (Hassel, 2006). To capture this e↵ect, we verify that CBI increases the likelihood that a country implements a social pact.…”

“…We complement this analysis using a composite indicator capturing the restrictiveness labor regulations towards part-time and contract workers. The data come from Reinsberg et al (2019).…”

Bad governance: How privatization increases corruption in the developing world

“…High‐income countries embraced market liberalism but – to some extent – weathered the pressures of globalization by establishing a form of “regulatory capitalism” (Braithwaite & Dahos ; Levi‐Faur ; Phillips ). In developing countries, however, powerful IFIs have successfully pushed for deregulation because states lacked the capacity to resist such pressures and re‐regulate markets (Babb & Kentikelenis ; Reinsberg et al 2018; Reinsberg et al ). Furthermore, IFIs often transplanted “regulatory innovations” from the developed world into developing countries, with insufficient embedding in local contexts (Dunning ; Dubash & Morgan ; Prakash & Potoski ).…”