Labor market reform is about improving the labor market towards ideal conditions. It is a part of supply-side economic policy, which in the aggregate, aims to increase the productive capacity of the economy.
The purpose of labor market reform
Reforms in the labor market seek to improve employment prospects for workers and output for the economy. Meanwhile, some specific objectives of the improvement include:
- Making the labor market more competitive and flexible
- Improving the quality of human capital
- Improving the responsiveness of wages
- in response to the strength of supply and demand
- Increase labor mobility
- Reducing labor costs
- Reducing the natural rate of unemployment (structural and frictional unemployment)
Type
Reforms in the labor market can take forms such as eliminating minimum wages, reducing income tax rates, increasing workplace safety, and reducing unemployment benefits.
Education and training are essential to improve the quality of human resources. Both contribute to reducing structural unemployment in the economy by providing training to renew the skills of the workforce. Furthermore, both also improve the mobility of workers when moving from one position to another.
