ILO paper questions IMF research on labour market reforms

27 June 2014

A recent publication by the International Labour Organisation (ILO) called into question the accuracy of the IMF’s latest research on the economic impact of labour market reforms. In a series of working papers IMF staff concluded that large-scale reforms of labour market institutions towards more flexibility could help to reduce unemployment significantly (see Update 86). The ILO argued that the IMF relied upon the papers’ findings to justify the weakening of labour regulation through its loan conditionalities.

However, the ILO publication criticised the working papers for relying largely on the World Bank employing a workers indicator, a dataset that the Bank itself has suspended due to major conceptual flaws. Furthermore, according to the ILO, breaks in the IMF’s time series and aggregation problems created a skewed picture of the actual reform processes and as a result the data is unable to capture the scope and size of labour reforms. The paper concluded that the empirical results of the IMF’s research rests on shaky ground, cautioning policymakers against making “hasty and ill-informed reforms on sensitive political issues with far-reaching economic and social consequences.”  Peter Bakvis of the International Trades Union Confederation said that in contrast to the Bank’s 2013 World Development Report on jobs, the IMF papers “show clear bias in favour of labour market deregulation by equating more flexible labour regulations with ‘better quality’”.