GOLDEN GROWTH
countries have managed to achieve both high labor market flexibility and high worker protection (group 1). Denmark’s flexicurity model is the most salient example, but Austria, Ireland, Switzerland, and the United Kingdom also fall into group 1. Most of the other EU15 countries, together with Norway, Slovenia, and Serbia, also provide significant worker protection, but their labor markets are fairly rigid (group 2). The majority of transition countries and Turkey are in group 3, with rigid labor markets and low worker protection. Some transition countries—most notably Georgia, but also Albania, Moldova, and Montenegro among others—can also be found in group 4, together with the non-European OECD countries. In general, there seems to be a tradeoff between flexibility and protection in labor markets, with a negative correlation between flexibility and protection across countries. This correlation is even stronger when considering only high-income countries. As discussed above, there seems to be a split among high-income countries, with the EU15 countries concentrating in group 2 and the non-European OECD countries in group 4. This suggests that as incomes increase, countries gravitate toward one of two work models: one that forgoes flexibility or one that forgoes protection. In that sense, transition countries might embark on a path toward one of the two work models. Some already seem to have chosen—Georgia, for example, the high flexibility/low protection model, and Slovenia, the low flexibility/high protection model.
Similar policies can yield different results Similar labor policies can lead to different outcomes. Efficiency is higher in countries with higher than median labor force participation rates and lower than average unemployment rates, youth unemployment rates, and long-term unemployment rates (table 6.1). Countries with structurally high labor force participation rates and low unemployment rates are considered efficient; all others, inefficient.8 Equity is measured by the Gini coefficient in consumption/ income.9 Labor market outcomes across countries can vary with different
Table 6.1: Similar policies can lead to different outcomes (labor market efficiency versus equity, 2007) Low equity
High equity
High “efficiency” in labor markets
Canada, Estonia, Latvia, New Zealand, Switzerland, United Kingdom, United States
Australia, Austria, Denmark, Ireland, Japan, Netherlands, Norway, Slovenia, Sweden
Low “efficiency” in labor markets
Albania, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Georgia, Greece, Lithuania, Macedonia FYR, Mexico, Moldova, Montenegro, Portugal, Romania, Turkey
Armenia, Belgium, Croatia, Czech Republic, Finland, France, Germany, Hungary, Italy, Republic of Korea, Poland, Serbia, Slovak Republic, Spain, Ukraine
Note: Color coding corresponds to the work models as defined in figure 6.7, based on labor market instruments and outcomes: purple (group 1); brown (group 2); yellow (group 3); and black (group 4). Equity classification is based on Gini coefficients for consumption and income and does not reflect equality in opportunities. Source: World Bank staff calculations, based on data from the Institute for the Study of Labor, OECD, and the World Bank; and ILO 2010. See annex 6.1 for more information.
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