And as we know from development economics, the presence of informal labour markets often is a signal that something is terribly wrong (and usually over-regulated) at the formal markets... and de-regulation often leads to increased formality and gains for workers. With no sign of de-regulation ahead, many are just dropping out of the formal workforce. Institutions matter.
I almost forgot to comment on the US jobs report on Friday, which was predictably disappointing. Of course, much of the commentary out there now (including the Bloomberg piece I just linked to) is focused on how this report puts a crimp in the Fed's plan to ground the helicopter. I think a more salient point that needs to be understood is the interaction of labour market and monetary policy institutions goes far beyond this mere blip in the Fed's plan to pull back on the tsunami of dollars. The labour market has already been pounded by fiscal "stimulus" and bad policies (minimum wages, vitiated property rights), and recent monetary policy has both increased the cost of living and eroded real wages. Put together, you've got stagnation in investment, meaning no real job creation, and discouragement - with the labour force participation rate in the US as low as it was in the Carter era, it would appear that the informal labour market may now be in ascendancy.
And as we know from development economics, the presence of informal labour markets often is a signal that something is terribly wrong (and usually over-regulated) at the formal markets... and de-regulation often leads to increased formality and gains for workers. With no sign of de-regulation ahead, many are just dropping out of the formal workforce. Institutions matter.
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AuthorDr. Christopher Hartwell is an institutional economist and President of CASE Warsaw. All commentary on this page is exclusively his own and in no way represents the views of CASE, his wife, his dog, or anyone else. Especially not his wife or his dog. Archives
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