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Mr. Waikei R Lam, Xiaoguang Liu, and Mr. Alfred Schipke
As China implements reforms under the “new normal,” maintaining stability in the labor market is a priority. The country’s demography and labor dynamics are changing, after benefitting in past decades from ample cheap labor. So far, the labor market appears to be resilient, even as growth slows, driven in part by expansion of the services sector. Migrant flows and possible labor hoarding in overcapacity sectors may also help explain this. Yet, while the latter two factors help serve as shock absorbers— contributing to labor market stability in the short term—if they persist, they may delay the needed adjustment process, contributing to an inefficient allocation of resources and curtailing productivity gains. This paper quantifies to what extent structural trends and the reform pace affect employment growth under the new normal. Delays in reform implementation would weaken growth prospects in the medium term, running the risk that job creation will fall below policy targets, leading to labor market pressures in the future. In contrast, successful transition might require faster reforms, including in the overcapacity and state-owned enterprise sectors, supported by well targeted social safety nets.
Davide Furceri, Mr. Lorenzo E. Bernal-Verdugo, and Mr. Dominique M. Guillaume
Using a sample of 97 countries spanning the period 1980?2008, we estimate that financial crises have a large negative impact on unemployment in the short term, but that this effect rapidly disappears in the medium term in countries with flexible labor market institutions, whereas the impact of financial crises is less pronounced but more persistent in countries with more rigid labor market institutions. These effects are even larger for youth unemployment in the short term and long-term unemployment in the medium term. Conversely, large upfront, or gradual but significant, comprehensive labor market policies have a positive impact on unemployment, albeit only in the medium term.
Mr. Waikei R Lam, Xiaoguang Liu, and Mr. Alfred Schipke

Front Matter Page Asia and Pacific Department Contents I. Introduction II. Labor Market Developments III. Explaining Labor Market Resilience IV. Empirical Analysis on Migrant Flows A. Okun’s Law Estimates B. Determinants of Migrant Flows V. Scenario Analysis on the Labor Market under the New Normal A. Elasticity between Employment and Growth across Sectors B. Estimation of Services Sector Share C. Scenario Analysis D. Simulation Results across Scenarios VI. Policy Implications VII. Conclusions References Figures

Mr. Bas B. Bakker and Mr. Li Zeng

rates in that year (-33 percent of disposable income; -17 percent of GDP). 3 OECD (2012) tries to explain the differences in resilience exhibited by labor markets during economic downturns. Its analysis is built upon the literature searching for underlying determinants of structural unemployment, including, among others, OECD (2006) and Bassanini and Duval ( 2006a , 2006b , 2009). It finds that structural policies and institutions indeed matter for labor market resilience, and that those structural policies and institutions that are conducive to good

Mr. Waikei R Lam, Xiaoguang Liu, and Mr. Alfred Schipke

-owned enterprises (SOE)—tend to support labor market resilience, despite slowing growth . China is at a demographic turning point, part of which includes a decline in surplus rural labor, which could dampen the negative pressures on employment as economic growth slows. At the same time, an expansion of the more labor-intensive services sector is generating more jobs. Unique features in China’s labor market—such as migrant flows and the employment of excess labor among SOEs and overcapacity sectors—also buffer employment against adverse shocks. However, even though this labor

Mr. Bas B. Bakker

labor market resilience, and that those structural policies and institutions that are conducive to good structural labor market outcomes are also good for labor market resilience. 8 Emerging Europe experienced a sudden stop of private capital inflows in late 2008 after the default of Lehman Brothers. In the euro area periphery, the slowdown of private capital inflows was more gradual and partly linked to the growing weakness of the euro area banking sector. 9 For a discussion of the experience of emerging Europe in the global financial and economic

Alexander Hijzen, Pedro S. Martins, and Jante Parlevliet
Since the global financial crisis, sector-level bargaining has come under renewed scrutiny. While in Southern Europe, the crisis raised concerns about the role of collective bargaining as an obstacle to labor market adjustment, in Northern Europe it was perceived more favourably and, according to some, may even have helped to weather the fallout of the crisis more easily. This paper seeks to contribute to a deeper understanding of sector-level bargaining systems and their role for labor market performance. We compare two countries with seemingly similar collective bargaining systems, the Netherlands and Portugal, and document a number of features that may affect labor market outcomes, including: i) the scope for flexibility at the firm or worker level within sector-level agreements; ii) the emphasis on representativeness as a criterion for extensions; iii) the effectiveness of coordination across bargaining units; and iv) pro-active government policies to enhance trust and cooperation between the social partners.
Alexander Hijzen, Pedro S. Martins, and Jante Parlevliet

pro-cyclical incentives for collective bargaining, and these are reinforced in the context of ultra-activity. While the pro-cyclicality of collective bargaining in itself may not be an issue, weak incentives for renegotiation reduce such pro-cyclicality in difficult economic conditions. This may hamper labor market resilience since it reduces the likelihood of finding mutually beneficial solutions in periods where these are most needed. 27 Ultra-activity reduces the scope for nominal and real wage reductions once collective agreements have expired. While this is