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IMF conditions weaken labor rights, World Bank labor policy inconsistent - Bretton Woods Project

A March IMF policy paper on Labour and product market reforms in advanced economies: fiscal costs, gains, and support postulated that, “persistently sluggish growth has led to growing policy emphasis on the need for structural reforms that improve the functioning of labour and product markets in advanced economies”. Amongst the reforms considered are “lower entry barriers for firms” and “reducing the level or duration of unemployment benefits where particularly high” during weak cyclical conditions.

Its main findings included that such reforms can raise output and thus strengthen public finances, for example, “unemployment benefit reforms improve fiscal outcomes both indirectly and directly through lower spending.” In line with IMF policy, the report makes a case for temporary fiscal stimulus but only where there is “available fiscal space” (see Update 55), although “a strong commitment to reforms is an essential prerequisite.”

Commenting on the paper, Cambridge University political scientist Bernhard Reinsberg found that “it is laudable that the IMF acknowledged that fiscal stimuli may be necessary not only to stimulate the economy after a financial crisis but also to facilitate structural reform.” However, he questioned the study’s assumption that labor market reforms are necessary to unleash growth. He cautioned that “labor regulations are vital to the protection of worker interests in marginalised places of the global economy. The results presented in the IMF staff note thus cannot be applied to the majority of countries around the globe.”

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