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This paper presents a selective overview of the literature on modeling labor market policies in developing countries. It considers welfare economics, theoretical models, and empirical evidence to highlight the three general features needed in future research on labor market policy in developing countries. The author identifies desirable research components (welfare economics, theoretical modeling, and empirical modeling) and pitfalls in the literature (inappropriate use of productivity, reliance on wrong kinds of empirical studies, lack of cost-benefit analysis, attention to only a subset of the goods and bads, and fallacy of composition). The paper concludes with suggested topics and methods for future research. The author states that sound labor market policy requires sound labor market models. The paper makes a case for developing policy based on explicit evaluation criteria, specific theoretical models, and comprehensive empirical evidence.

Earning --- Informal Sector --- Labor economics --- Labor Market --- Labor Market Policies --- Labor Market Policy --- Labor Markets --- Labor Policies --- Macroeconomics and Economic Growth --- Markets and Market Access --- Minimum Wage --- Social Protections and Labor --- Sound labor market policy --- Wage Policy

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This paper presents a selective overview of the literature on modeling labor market policies in developing countries. It considers welfare economics, theoretical models, and empirical evidence to highlight the three general features needed in future research on labor market policy in developing countries. The author identifies desirable research components (welfare economics, theoretical modeling, and empirical modeling) and pitfalls in the literature (inappropriate use of productivity, reliance on wrong kinds of empirical studies, lack of cost-benefit analysis, attention to only a subset of the goods and bads, and fallacy of composition). The paper concludes with suggested topics and methods for future research. The author states that sound labor market policy requires sound labor market models. The paper makes a case for developing policy based on explicit evaluation criteria, specific theoretical models, and comprehensive empirical evidence.

Earning --- Informal Sector --- Labor economics --- Labor Market --- Labor Market Policies --- Labor Market Policy --- Labor Markets --- Labor Policies --- Macroeconomics and Economic Growth --- Markets and Market Access --- Minimum Wage --- Social Protections and Labor --- Sound labor market policy --- Wage Policy

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Changes in economic systems provide a rare opportunity to redesign basic institutional structures in labor markets. This paper attempts to provide guidance for such institutional choice by drawing on the findings of recent labor market research in market economies on the links between institutional structure and labor market performance. After considering the suitability of research from market economies for the labor market problems faced by economies in transition from central planning, the paper considers the effects of alternative institutions for wage determination (collective bargaining structures and minimum wage and indexation legislation), employment security, income security, and active labor market policy.

Labor --- Demand and Supply of Labor: General --- Wages, Compensation, and Labor Costs: General --- Unemployment: Models, Duration, Incidence, and Job Search --- Labor Economics Policies --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Labour --- income economics --- Labor markets --- Active labor market policies --- Labor market --- Manpower policy --- Economic theory --- United States --- Income economics

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Income distribution may be related to fundamentals affecting economic growth and to labor market policies. Noting that inequality is affected by unemployment. This paper presents a model in which labor market policies affect unemployment which in turn affects inequality. The model also includes the effects of changes in per capita income on inequality through the accumulation of physical capital and technological know–how. When a resulting reduced–form relationship is estimated, its explanatory power is surprisingly high: on average, it explains about three quarters of the variation in inequality measures for the OECD countries, and Granger Causality tests confirm the model’s predictions.

Labor --- Macroeconomics --- Distribution: General --- Fiscal Policy --- Fiscal Policies and Behavior of Economic Agents: General --- Economic Growth and Aggregate Productivity: General --- Aggregate Factor Income Distribution --- Labor Economics Policies --- Personal Income, Wealth, and Their Distributions --- Labour --- income economics --- Income inequality --- Labor market policy --- Personal income --- Income distribution --- Active labor market policies --- National accounts --- Manpower policy --- Income --- United Kingdom --- Income economics

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Labor market duality is a complex and critical issue for many countries that can lower productivity, contribute to inequality and result in negative externalities. In this paper, I study duality in the Korean labor market and analyze its sources and potential policy options. I find that employment protection legislations and large productivity differentials are the key drivers of Korea’s duality. In addition, applying a general equilibrium search-and-matching model and calibrating it to the Korean economy, I show that well-calibrated flexicurity policies can significantly reduce duality and inequality and raise welfare and productivity. Notably, the introduction of all three pillars—flexiblity, a strong safety net and active labor market policies—is critical for its success. If only one pillar is introduced it can result in negative side-effects and might not reduce duality.

Labor --- Macroeconomics --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Labor Economics Policies --- Labor Force and Employment, Size, and Structure --- Demand and Supply of Labor: General --- Wages, Compensation, and Labor Costs: General --- Labor Economics: General --- Labour --- income economics --- Labor markets --- Active labor market policies --- Economic theory --- Labor market --- Labor economics --- Manpower policy --- Korea, Republic of --- Income economics