Intended and Unintended Impacts of Labor Market Regulations

Yana van der Meulen RodgersRutgers University

April 25, 2007PREM Learning Week

Employment and Gender in the Shared-Growth Agenda

Organization

• Motivation• Labor Market Policies with Gender-

Differentiated Effects– Maternity Leave– Working-Hour Restrictions– Equal Treatment in the Workplace– Minimum Wage

• Trade Policy Liberalization and Gender-Differentiated Effects

• Conclusion: Thoughts on Enforcement Mechanisms

Labor Market Policies with Gender- Differentiated Effects

• Maternity Leave and Working-Hour Restrictions– Brief History and Current Prevalence

• Original motivation: women physically weaker than men and more susceptible to exploitation, needed special protection against arduous working conditions and protection of family time at home

– Theoretical Impact on female workers

– Measurement: natural experiment approach• Difference-in difference-in differences: across time,

sector (or state), and demographic group

Effect of Maternity Benefits on Female Employment and Pay

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W

Measurement

• United States and Europe

– Employment by up to 4%; magnitude rises as benefits become more generous.

– Wage or no change if benefits mandated, by as much as 5%.

• Taiwan: Employment , no significant wage change. Enforcement matters.

• Costa Rica: Wage , no significant employment change. Enforcement matters.

• Malaysia and Bangladesh: Raising worker awareness is important for compliance.

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Lf Lm LT

Sf Sm

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D

Effect of Working-Hour Restrictions on Female Employment and Pay

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Sf Sm

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Effect of Working-Hour Restrictions on Female Employment and Pay

Measurement

• United States in the early 1900s– Landes: Restrictive effect predominates: female

employment fell as flexibility of female labor fell.– Goldin: Longer-term effect predominates: female

employment as women desired shorter work days• Today’s developing countries:

– Taiwan: female hours and employment only after Labor Standards Law was enforced

– Other countries: scant evidence

More on Night Work Prohibitions

• Since 1919, ILO’s Four Conventions on Night Work have received 165 ratifications and 72 denunciations

– Sign of conflicting impacts and needs: protection of female workers vs. persistence of gender inequality and discrimination

• In 2001, ILO committee took broad survey on the application of night work conventions in manufacturing over past 80 years (summarized in Politakis 2001)

– Are the ILO instruments still relevant and suited to present-day needs and values?

More on Night Work Prohibitions

• Today cannot justify night work prohibition on basis of sex rather than the worker’s physical aptitude.

• Conflicts against fundamental principles of nondiscrimination and equality of opportunity and treatment in the workplace

• About 50 countries worldwide still apply a general prohibition of women’s employment at night in all industrial activities, vs 36 countries with no sex-specific regulations on night work.

• A number of countries in between these two extremes.

• Ample evidence that the impact of the night work conventions is weakening

• Committee sees little reason for retaining protective standards for female workers only.

Labor Market Policies with Gender-Differentiated Effects

• Equal Treatment in the Workplace– Equal Pay and Comparable Worth– Equal Opportunity and Affirmative Action

• Prevalence, theoretical Impact, measurement issues

• Minimum Wage– Gender-differentiated effects if minimum wage is relatively

low compared to mean, and women more likely to be at the lower tail of wage distribution (in this case, raising women’s average wages compared to men)

– But disemployment effects could push more women into informal sector

– Recent evidence for Latin America in Cunningham and Kristensen (2006) and for Brazil in Neumark, Cunningham, and Siga (2006).

Trade Policy Liberalization and Gender-Differentiated Effects

• Growing evidence that trade policy liberalization results in higher levels of competition (e.g. Krishna and Mitra (1998) in case of India)

• Has greater competition through trade liberalization affected wages of men and women differently?

• Variation in rates of liberalization across industries→ good opportunity for empirical estimation

• Objective in recent set of studies: test a theoretical model of competition and industry concentration that incorporates firms’ “tastes for discrimination” (Becker 1971)

Trade Policy Liberalization

• Increased participation in global economy pressures firms to cut costs

If discrimination is costly, increased competition reduces incentives for employers to discriminate.

• Expect to see smaller pay differentials.

• Identification strategy: effects from trade competition should be more pronounced in concentrated sectors─ employers can use rents to indulge taste for

discrimination─ any reduction in wage gap in concentrated industries

should be attributed to international trade, not domestic forces

Trade Policy Liberalization

• Current literature: few econometric studies on trade and gender wage gap, with conflicting results:– more trade openness→wider gaps

• Berik et al. (2004) for Taiwan and S. Korea• Menon and Rodgers (2007) for India

– more trade openness→smaller gaps• Behrman and King (2002) for cross-country sample• Artecona and Cunningham (2002) and Hazarika and Otero

(2004) for Mexico• Black & Brainerd (2004) for U.S.

• Challenge: linking labor force surveys with industry-level data on production, firm concentration, and trade

– Evidence for India from four waves of National Sample Survey Organization (NSSO), combined with World Bank’s Trade, Production, and Protection Database, and India’s Annual Survey of Industries

Descriptive AnalysisTrade Ratios and Female/Male Wage Ratio in India

Oaxaca-Blinder Decomposition of Male-Female Wage Gap in India (in log points)

1983 1987-1988 1999-2000 2004

All Education Groups

Total M-F Wage Gap 0.767 0.721 0.725 0.710

Explained Gap 0.244 0.249 0.235 0.156

Residual Gap 0.523 0.472 0.490 0.554

% Gap Unexplained 68.2% 65.5% 67.6% 78.0%

Note: NSSO measured characteristics: Education level attained, technical education, potential experience, # pre-school children, regional location, rural, married, low-caste, self-employed, religion, household head.

Testing the Model with Industry-Level Regressions for India

Empirical strategy: Test relationship between wage gap by industry over time, and:– Domestic concentration by industry– Trade share by industry – Year– Interaction between concentration, trade share, and

year Coefficient on the three-way interaction term represents

impact of international trade competition in concentrated industries over time.

Testing the Model for India

Test 6 specifications with OLS ─ Variations by unadjusted vs. residual wage gap, and

by measurement of trade share Greater trade openness over time in more

concentrated industries associated with higher gender wage gaps – Result statistically and substantively significant

across 6 models– Coefficient on import share measured more

precisely than export share– Robust (5 of 6 models) to estimations with fixed

effects to control for time-invariant, industry-specific characteristics

Conclusion

• Labor market policy implications: – Gender equality at all education levels– Firm-specific training, vocational education– Stronger enforcement of anti-discrimination legislation.

• Enforcement mechanisms– Domestic governments– Codes of conduct: is voluntary compliance by

corporations sufficient?– Global enforcement: concern about unintended effect of

displacing female workers to informal sector– Trade incentives approach (similar to Better Factories

Cambodia) combined with improving non-labor aspects of competitiveness and diversifying exports.