IMF labours its point on job market “flexibility”

28 November 2013

An October article by Olivier Blanchard, the IMF’s chief economistfor economic policy website Vox written with Fund staff Florence Jaumotte, and Prakash Loungani, insisted that in dealing with the “dismal” labour markets in advanced economies, “flexibility is crucial”. The article described this viewpoint as the “concensus” amongst labour market researchers, echoing an a key theme in the IMF’s April policy paper (see Update 86).  However, Peter Bakvis of the International Trade Union Confederation disputed the article’s description of a “consensus”, pointing to research by the Organisation for Economic Co-operation and Development and the Bank’s own 2013 World Development Report, which “concludes that labour market deregulation generally has an insignificant impact on growth or employment but, in most cases, increases earnings inequality.”

In late September the IMF published new operational guidance relating to the April policy paper. The guidance note covers the areas where the IMF board identified scope for improvement, including analysis of growth and employment “challenges”, tax and spending reforms aimed at reducing inequalities; and strengthening job creation and labour force participation, particularly by women.  In addition the note acknowledges the board’s observation that on labour market reforms and social protection schemes, the Fund should “collaborate with other institutions with greater relevant expertise” including the World Bank, the OECD and the International Labour Organisation (ILO). It was accompanied by case studies illustrating how countries, including Haiti, the Republic of Congo and Germany, have addressed jobs and growth.