تنظیم مالی و پویایی های بازار کار در اقتصاد باز

This paper studies the labor market effects of fiscal adjustment in a two-sector, three-good intertemporal framework. Key features of the model are an informal sector, minimum wages, unionized labor in the formal economy, imperfect labor mobility, and public production of intermediate inputs. “Luxury” and wait unemployment prevail in equilibrium. It is shown that if unions care sufficiently about employment, and if the degree of openness is high, an increase in the price of government services may reduce unemployment in the steady state. A similar result would hold in an efficiency-wage setting if the “disciplinary effect” of unemployment is sufficiently strong.

Fiscal adjustment typically represents a key component of stabilization programs. A common scenario in middle-income countries is one of excessive budget deficits fueling a rapid expansion in domestic public debt and sharp increases in real interest rates. In turn, high interest rates lead to unsustainable debt dynamics, because the government is unable to generate a sufficiently large primary budget surplus. An economic and financial crisis, entailing large social costs in terms of employment and poverty, often ensues, followed by a macroeconomic and structural reform program aimed at increasing the primary surplus and reducing the public debt to manageable proportions. Argentina, Brazil, and Turkey are all recent examples of countries where unsustainable debt dynamics led to crises and subsequent attempts to being fiscal imbalances under control. In Turkey, for instance, the adjustment program introduced in May 2001, shortly after the February currency crisis, called for maintaining a primary surplus on the order of 6.5% of GNP over the medium term, in order to achieve the goal of single digit inflation by 2005 (see Yilmaz and Boratav (2003)). In practice, budget austerity has taken various forms, including cuts in expenditure on goods and services, increases in direct and indirect taxes, absolute and relative reductions in wage compensation for civil servants, increases in the relative price of public services, changes in the government's wage-setting policies, and the imposition of constraints on the growth in (or reductions in the level of) public sector employment. How the budget deficit is reduced is, of course, just as important as the magnitude of the adjustment. A reduction in the fiscal deficit achieved through cutting investment on productive infrastructure or trimming expenditure on operations and maintenance, for instance, may not be sustainable over time. Moreover, because the public sector is often a major employer in developing countries, fiscal consolidation tends to have significant effects on wages and employment in the private sector. Identifying the channels through which fiscal policies are transmitted to the labor market is thus an essential step in understanding the real effects of adjustment programs in developing countries.1 Of particular interest in the present study is the macroeconomic effects associated with attempts to improve the financial situation of public enterprises. These enterprises are, in some countries, major contributors to the budget through direct transfers, in addition to the tax revenue that they provide. In others, however, they represent a drain on public finances because of the large subsidies that they receive. Attempts at improving their financial situation have taken a variety of forms, including measures aimed at increasing efficiency and lowering costs (most notably by reducing “excessive” employment), and market-based pricing policies. In oil-exporting countries, for instance, adjustment has often entailed raising domestic prices of fuel and gasoline—which governments often try to keep at low levels for political reasons—to world market prices. A case in point is Nigeria where, on September 30, 2003, the government lifted its long-standing ceilings on domestic fuel prices, in an attempt to alleviate the adverse effects of subsidies (about US$1 billion a year) on the budget deficit. Because this type of public goods is used as intermediate inputs in the production process in the private sector, opponents often argue that they tend to have contractionary effects on output in both the short and the long run, and to raise unemployment. At the same time, however, advocates of these policies often claim that although there may be short-term costs, the longer-run benefits associated with a reduction in fiscal imbalances (lower interest rates, reduction in inflation expectations, and so on) may be expansionary and may well dominate. For instance, if increases in public sector prices lead to cuts in government subsidies to state-owned enterprises, and thus to reductions in public expenditure and fiscal deficits that are sufficient to lower the debt-to-GDP ratio to sustainable levels, the risk premium incorporated in domestic interest rates may fall, thereby stimulating investment, production and employment. Alternatively, if deficits are money-financed, the reduction in subsidies can attenuate pressures to monetize fiscal imbalances, which may in turn lower inflation expectations, increase the expected real rate of return on physical investment, and once again stimulate capital accumulation, output and job creation. The analytical literature aimed at understanding the macroeconomic effects of changes in public sector prices in developing economies in a dynamic setting remains scant.2 The present paper contributes to this literature by emphasizing general equilibrium effects that do not operate through interest rates or inflation expectations, but rather through wage-setting behavior in the labor market. Specifically, it develops an open-economy macro framework that incorporates public sector production and employment as well as several important features of developing countries. The first is the explicit consideration of an informal sector, in which wages and prices are flexible. In many developing economies, this sector has grown considerably in importance during the 1980s and 1990s. In countries like India and Bangladesh, for instance, the proportion of employment in the formal sector barely exceeds 10% of the labor force. In many sub-Saharan African countries, the share of informal employment in total employment exceeds 60% (see Dabalen, (2000)). Similar figures can be found in the non-oil exporting countries of the Middle East and North Africa (World Bank, (2003)).3 Other important features of the model include a heterogeneous and imperfectly mobile labor force, and labor market segmentation induced by government regulations and the behavior of trade unions. In many developing countries, trade unions play indeed an important role in determining wages for at least some categories of workers in the formal sector (see Nelson, (1994)). In Ghana, for instance, labor unions have a powerful presence in the formal economy, in both the public and private sectors. Although in some countries, unionization rates are quite low, wage settlements negotiated by unions in some “strategic” sector or sectors often play a critical “signaling role” for the rest of the economy. The combination of these features gives a fairly “realistic” flavor to the model, despite its stylized nature. As discussed later, however, the main result of the paper regarding the macroeconomic effects of an increase in public sector prices—lower unemployment in the steady state—would carry through in more general settings. Although some of the features emphasized here do affect the shape and nature of the transitional dynamics, most of them are made to enhance tractability. The assumption about the behavior of the trade union is important but even that is not essential; it could be replaced by various types of efficiency-wage considerations, and the main result would still carry through—as long as some conditions (identified explicitly later) on the behavior of workers are satisfied. The remainder of the paper proceeds as follows. The analytical framework is presented in Section 2. Its dynamic structure is described in Section 3, with all mathematical details relegated to the Appendix A. Section 4 examines the impact and steady-state effects of an increase in the real price of government services. Section 5 elaborates on the main results of the paper, and discusses how changes in the specification of the model would affect them. Testable implications of the model are also identified. The last section discusses some possible extensions of the analysis.

The role of the labor market in the process of economic reform in developing countries has been the subject of renewed interest in recent years. The purpose of this paper has been to study the effects of fiscal adjustment in an intertemporal macroeconomic framework that captures some of the most salient features of these markets. The model developed here accounts, in particular, for the existence of a large informal sector and the use of public intermediate inputs in the production of tradables in the formal sector. Labor market segmentation was introduced through minimum wage legislation for unskilled labor and the assumption that wages earned by skilled workers in the exportable sector are determined by a utility—maximizing trade union. Despite wage flexibility in the informal sector, “quasi-voluntary” unemployment of both skilled and unskilled workers was shown to typically emerge in equilibrium. Skilled unemployment emerged as a result of the assumption that the opportunity cost of leisure is lower (and/or the reservation wage is higher) than the going wage in the informal sector, whereas unskilled unemployment resulted from “wait” or “queuing” considerations in the tradition of Harris and Todaro (1970). The model was used to study the macroeconomic effects of an increase in the price of government services. The main result of the analysis is that if indirect effects on skilled workers' wages are sufficiently strong (or equivalently if unions care sufficiently about skilled employment), and if the degree of openness of the economy is sufficiently high, unemployment of both skilled and unskilled labor may actually fall in the long run. It was also pointed out that the assumption that unions care about both wages and employment is fairly general and that results qualitatively similar to those derived here could be obtained in models in which firms set wages on the basis of efficiency considerations, as long as unemployment serves a sufficiently strong role as a “discipline device.” The policy implications of the analysis are thus quite important—arguments against adjustment in the price of government services based on possible adverse employment effects are therefore not necessarily valid once general equilibrium interactions are taken into account. It was also noted that there are two testable assumptions in the model: the first relates to the structure of unions' preferences (namely, the fact that unions in the private formal sector must care sufficiently about employment), and the second to the assumption that the skilled product wage in the formal sector and the real exchange rate are negatively related. Unfortunately, there is no convincing work at the moment that would allow reliable statements about the direction and strength of these effects. The model developed in this paper could be extended in a variety of ways, by considering for instance the case in which government services are also used as intermediate inputs in the production process in the informal sector. In such conditions, output of informal sector goods would also fall on impact following an increase in the price of government services, rather than remaining unchanged; otherwise, however, the effects of this shock would remain qualitatively similar to those described earlier. Perhaps a more fruitful extension would be to introduce money and distortionary taxation, and to assume that informal sector activities are taxed at a lower rate (possibly zero) than those performed in the formal sector. Because, as shown earlier, fiscal adjustment policies typically lead to a reallocation of production activities and employment across sectors in the long run, they also affect tax revenue. Such changes in revenue may have important implications for alternative sources of deficit financing, notably the degree of reliance on the inflation tax. Extensions of this type, together with detailed empirical work on labor demand elasticities, the degree of labor mobility, and the degree of relative wage rigidity across sectors, are essential for improving further our understanding of the aggregate effects of adjustment programs on wages and employment.