Labour Markets, Poverty, and Development

Giorgio Barba Navaretti, Riccardo Faini, and Giovanni Zanalda

In most developing countries, the last fifteen years have been about adjustment and structural change. And adjustment and restructuring often deliver heavy tolls on labour, particularly in the short run. In the 1980s developing countries strove to cope with the consequences of the debt crisis. There was widespread concern at that time that adjustment would determine a marked deterioration in wage and employment conditions, as well as in poverty and income distribution ( Cornia et al. 1987; World Bank 1989). The outlook for Third World countries changed for the better during the 1990s. Growth recovered and many developing countries were able to resume commercial borrowing.Yet concerns about the labour market outcome have not subsided. Fast integration into the world economy, together with the rapid pace of technological progress, have if anything strengthened the need for structural change. Moreover, there are worrisome indications that the lot of unskilled workers has not improved in the wake of trade liberalization and structural reforms ( Wood 1997).

The orthodox method of coping with labour market disruption is to enhance mobility. However, this does not simply mean enabling people to change jobs. Enhancing mobility means creating new types of economic activity, new skills, new institutions and labour market regulations, new work locations, and new relative wages. Aggregate analysis is therefore inadequate or, at best, incomplete. Understanding macro responses and trends in aggregate employment requires exploring how labour, in all its diverse facets, responds to changing incentives and institutions at the micro level. Labour markets have provided a very fertile ground for new developments and applications of microeconomic theory. The widening of research on issues such as efficiency wages, bargaining, learning and human capital formation, asymmetric information, and uncertainty has helped to build up a more comprehensive explanation of employment trends.

This volume was conceived so as to emphasize the micro-macro link. A 'vertical' perspective, from the macro trends to the minute functioning of markets, provides the texture that brings together all the papers collected here. The book starts with the analysis of the relationship between employment and broad economic aggregates: growth and trade. It then provides new findings on the workings of some key aspects of urban and rural labour markets.

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