>> Welcome to the labour market video from an institutional perspective. This is all about institutions. In this video, I will first discuss the institutions of labour supply, then the institutions of labour demands and then institutions around contracts and wages. What I find most insightful from this theory is that it explains not only why workers and employers interests can diverge, but also how they overlap and what policies help us to create win-win situations? Let me start with the institutions of labour supply. Labour supply is not just there. The number of people offering their labour and the human capital embedded in that labor is strongly influenced by formal institutions in particular education, and social protection policies like pensions, and unemployment arrangements, and institutions differ between countries. So, the factors driving labour supply also differ. In developed countries, we also need to be aware of the welfare trap. When the unemployed receive state support, they will lose this when they take up a job again. And often, they will lose other support like housing subsidies and free healthcare. So getting a job may mean losing state support, so that a net benefit of earning an owned income is zero. This leads to a policy dilemma. How to get people back to jobs while at the same time provide social protection for those who need it? While politicians are still figuring out how to do this, let us focus on informal institutions of labour supply. We've all ready seen the so-called blue and pink sectors where men, and women tend to be concentrated respectively. And there are the typical 3D jobs that are often taken up by immigrants, dirty, dangerous and demeaning. In South Africa, for example, we see such jobs being taken up by immigrant workers from countries, such as Zimbabwe and Mozambique. For example, in the mining sector. A particular type of institutions are gendered institutions. They're very influential in labour market. So let's take a closer look at them, because they disadvantage a large group of people and because economies need more income earners in order to be able to finance the aging population in many countries from France to China. Women's labour supply could suffer from a range of institutional constraints. Low school enrollment by girls. Typical pink subject choices by girls. School drop-outs due to marriage and pregnancy. The gender division of labour in household. And as a consequence, limit of mobility in the labour markets, but we also see that mothers stands to be paid without a father when it comes to parental leave. This is often experienced as positive in the short-term, but as a negative externality in the long-term. Namely, that is reinforces the stereotype gender division of labour. Also on the demand side of the labour market, we find institutions. For example, the phenomenon of internal labour markets which are career paths within big firms or in the state. They characterize by internal promotions and firm specific training. An important issue to institutional constraint for disadvantage to groups in the labour market is statistical discrimination. It implies the disadvantaging of individuals on the basis of the group average of a particular characteristic. For example, one of the hidden barriers of the glass ceiling, hampering women's careers is that many bosses. Don't like to promote an excellent female employee to a management function when she is in her early thirties, because he fears that she will take a few times maternity leave in the coming years. This is often not discussed, but simply assumed. Even if the woman in question does not want to have kids or has already made arrangements at home to ensure that she can combine parenthood with a career just like fathers do and there's the institution of contracts, and rights. To start with a letter in the ILO, which is the UN International Labor Organization. Countries have agreed to set of fundamental principles and rights at work. Check out the ILO website, if you want to know more on how your country is performing on these rights. The table on this slide is like the other tables that include in the videos about the labour markets from South Africa. The sources can be found in the course book, chapter nine. This tables shows the distribution of work in South Africa over various types of labour contracts. It indicates that more men and women have written contract, and permanent contract. These points at the more precarious labour market position of women. The table on this slides summarizes the effects of certain labour market institutions for workers and for employers, respectively. In the first column, the different types of institutions are specified. In the second column, you read if it is positive or negative for workers. And in the third column, you read if it is positive or negative for employers. Internal labour markets stand to be beneficial for both groups, but labour rights tend to benefit workers over employers. Flexibillzation does the opposite. This is because it generates job insecurity for workers while it allows employers to adapt easier to changes in economy. They can hire and fire more easily. Finally and not surprisingly, discrimination works out negatively for workers and also for employers. Because in the end, it's not efficient to exclude part of the pool of talents. Let's talk wages now. How are wages understood in institutional economics? First, I'd like to discuss minimum wages. Some countries have minimum wages, others not and they can be found both in the developed world and in the developing world. The United States, for example, does not have a federal level minimum wage and only some states have one. An effective minimum wage lies above the market wage. This implies less poverty for those working. Less inequality at the bottom of the wage distribution and sometimes higher levels of social protection. For more than 30 years, economists have discussed the issue of so-called efficiency wages. These are above market level wages, which trigger positive externalities in labour effort. Sounds too good to be true right? Paying high wages and getting higher labour productivity in return. So rather than using the whip of low wages to squeeze every last bit of labor productivity out of your workers, you rather pay them more, so that they become grateful and work harder out of their own choice to keep a well-paid job. So yes, there is a logic behind it. The main issue in a discussion is around the question of unemployment. Higher wages increase the cost of labour from an employers perspective. Hence, they are likely to hire less workers, but doesn't this decrease the demand for labour? First, let's look at the minimum wages for domestic workers in South Africa. The labour union for domestic workers has managed to get a low in place that guarantees their minimum wages. A bit more in urban areas than in rural areas and a bit less for contracts with 27 hours or more. The minimum wage was between 8 and 10.50 rands per hour in the year 2013. In this final slide, I come back to the debate about the question whether efficiency wages increase unemployment. The debate has lead to five arguments claiming that efficiency wages will not increase unemployment. First, only a few workers earn the minimum wage. So increasing their wages above that level is not a big deal, anyway. Second, higher wages stimulate workers capabilities and motivation. They're now more likely to invest in training and to learn on the job, because they do not want to lose the job. Third, there's a clear positive effect on labour relations. So, labour conflict will be less. Fourth, doing the opposite to cost reduction prevents a race to the bottom where lower wages triggering lower productivity. Instead, efficiency wages stimulate a positive spiral between wages and productivity, boosting the local economy. And finally, efficiency wages strengthen intrinsic motivation of workers. People appreciate it when you are valued according to what they can and to what they do. Any wage that feels fair does precisely that signaling appreciation, which is much more valuable than simply transacting Interaction between labour power and a wage. >> That's the sound of the men working on the chain, gang. All day long they're singing.
