The Right Mix of Labor Regulations Can Protect Workers While Maintaining Incentives to Create Jobs, Says New WBG/ILO Report

December 9, 2015

WASHINGTON, December 9, 2015— The World Bank Group (WBG) and International Labor Organization (ILO) today released a new report which shows how countries can reform labor regulations to protect their workers without reducing incentives to create jobs.  

Job creation is a pressing issue facing both developed and developing countries today. More than 200 million people worldwide are currently unemployed, including 75 million youth (under the age of 25). An additional 600 million jobs are needed globally over the next decade to keep employment rates stable and to keep up with population growth. An important challenge for countries is to find a balance between workers’ protection and flexibility in the management of human resources.

Titled “Balancing regulations to promote jobs: From employment contracts to unemployment benefits,” the report offers guidelines to design, implement, and reform labor market regulations in four areas: employment contracts, minimum wages, dismissal procedures, and income protection for the unemployed.   According to the report, labor regulations are important because well designed policies can help create jobs, whereas economic growth alone may not do so. Such policies can also address labor market distortions while ensuring the market is efficient.  

“Jobs are at the core of the World Bank Group’s mission to end poverty and boost shared prosperity. We are proud to collaborate with the ILO on this report, which reflects our shared vision to help countries create the right conditions so that everyone has the opportunity to secure a good job and build a better life for themselves and their families.  We hope this report will inform countries’ paths to achieve the Global Goal to promote inclusive economic growth, employment and better jobs for all” said Arup Banerji, World Bank Group Senior Director for the Social Protection, Labor and Jobs.

The Bank Group actively supports programs that aim to boost the private sector; build the skills of the labor force; expand the coverage of worker protection systems; and facilitate labor market transitions from school or inactivity to work, out of unemployment, or from low- to higher-productivity job.

"As jobs and employment relationships change, governments need sound advice on how to regulate labor markets to encourage hiring while protecting the basic interests of working people. This report, which is a product of a year-long collaboration between the Bank and the ILO, responds to the need to provide evidence-based guidance on what works,” said Sandra Polaski, the International Labor Organization Deputy-Director General for Policy.

Studies from both developed and developing countries show that labor market regulations can affect productivity, labor force participation, earnings, or informal employment. The evidence points to the need to ensure that policies to promote employment opportunities also protect workers and provide incentives for work.  

“There is no one size fits all but there are general principles that can be followed to ensure that labor regulations work better for both workers and employers,”  said David Robalino, World Bank Group Lead Economist and one of the report authors.

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