The Partnership for Economic Policy (PEP) was founded on the belief that in-country challenges require locally devised solutions. For over two decades now, PEP—a Southern-led global organization—has supported locally-led development in the Global South through implementing nearly 400 projects in 66 countries and building the capacity of over 1250 researchers, with half of them being women. Yet, experts based in the Global North continue to lead development research and policy debates in the Global South.
The participation of researchers from the Global South in development economics research, policy and consulting activities has only marginally increased over the decades, if at all. So says evidence from a series of studies on localization launched by PEP’s Research Fellows in 2020. Subsequently, PEP launched a call-to-action (CtA) to address this persistent marginalization of voices from Southern countries, which was signed by more than 80 leading economists to advocate for the changes necessary to increase the participation of Southern researchers.
PEP has also launched a blog series titled Context Matters, interviewing PEP’s large network of local experts to highlight why their deeper understanding of the social, political and economic contexts of their countries, their in-country relationships with policymakers and other relevant stakeholders, and their presence on the ground is critical to shaping better welfare outcomes for the population of the Global South.
The first interview was with Nisha Arunatilake, a PEP Research Fellow, co-author of the CtA, and the Director of Research and a fellow at the Institute of Policy Studies (IPS) in Sri Lanka. In this second one in the series, we speak to PEP Research Fellow Lucas Ronconi, Professor of Economics at University of Buenos Aires and researcher at the National Scientific Research Council (CONICET) in Argentina, about how labor market regulation laws in countries of the global South need an empirical understanding that is contextualized and nuanced to reflect their reality and thus inform policy solutions effectively.
Why does the empirical understanding of labor market regulation laws in different countries, especially those of the global South, need to be contextualized?
It is important to contextualize research as a principle, but I will particularly talk about this through the example of labor market regulation as this has been an area of my research. When it comes to the discussion about how to regulate the labor market, we care about improving the lives of both workers and employers. This requires optimal regulation, which both protects and provides benefits to workers while also keeping things simple for employers. To find the right balance, a theoretical (Neoclassical or Marxist) approach is inadequate and empirical research becomes necessary. The answer lies in ‘appropriate’ empirical research because it could be the case that what works best for some region in India is not what works well for United States, or Argentina.
Country-specific analysis sounds like a logical approach, so where does the problem lie?
There is a tendency, at least in economics, to have a one-size-fits-all type of theory. That is useful for some purposes, but not for others. It has led to errors in the past, particularly when informing policy debates, primarily because researchers lacked local knowledge. Let me share the example of a classical study, which compared the U.S with France, and at the cost of simplifying the debate a little, while the U.S. has basically no labor regulation, France has a number of protective labor regulations.
So, the researchers compared the outcomes based on the assumption that the laws were enforced. The assumption worked in this comparison but there was a problem when the same assumption was applied to low and middle income countries. In their paper titled ‘The Regulation of Labor’ in the Quarterly Journal of Economics, the researchers compared labor laws in 85 countries, including comparing India and Mozambique with countries like Canada and New Zealand. The assumption that the labor code is a good proxy for state intervention in the labor market did not work in this case because despite Mozambique having much more protective laws than Canada, for instance, the state enforces the law in Canada but not in Mozambique.
So, the point I want to make is that a methodological assumption which works for developed countries may not be applicable in poorer countries where enforcement is weak and there is little compliance.
That is very interesting. Can you share more examples to amplify the point further?
Let me share the example of a specific paper written by well-known economists exclusively about India titled –‘Can labor regulation hinder economic performance? Evidence from India’ – again in the Quarterly Journal of Economics. In this paper, they were comparing different states for labor market regulation. Now, India is a large federal country and there is a lot of variation across states with respect to how stringent the labor laws are. So there are some states with very strict laws while others are closer to the employment at will doctrine. When they compared the outcomes between the different states, they based it only on the letter of the law, assuming it is being enforced, and concluded that workers were doing worse in states with more protective labor laws. However, even colleagues in India pointed out that this was a poor assumption as many states with protective laws completely lacked enforcement.
Then there is yet another example of a book titled, ‘Law and employment: Lessons from Latin America and the Caribbean’, by Nobel laureate James Heckman, which he has co-edited with Carmen Pagés. It carries out a similar analysis comparing countries in Latin America, such as Venezuela and Chile for example. Again, even though Venezuela has more protective laws, Chile has stricter enforcement of less protective laws and the problem of the methodological assumption persists.
So what is the way around it?
The way to address this is to examine effective regulation, which combines what is written in the law and its level of enforcement. But, as exemplified above, some researchers in the global North tend to assume that what is written in the books is a good proxy for effective labor regulation. Conversely, researchers located in the South have the advantage of learning from first-hand experience. They know that the government at times even deliberately offsets the introduction of a protective law with reduced enforcement to please different constituencies. This is actually important research in progress and I believe that journals in the North must be open to such research questions.
But you are saying the journals are not open to these questions – why is that so?
There is variation. But in the field of Development Economics, yes, several journals are not sufficiently open. They have a hierarchy of methods, where RCTs (randomized controlled trials) are at the top of the pyramid. In my view, if your paper deals with a relevant subject but it is not based on an RCT, then your chances of getting published are lower than writing about a less relevant subject but implementing an (expensive) RCT. This is a major barrier for Southern-based researchers because, first, we usually do not have the funds to run a large RCT. Second, because we live in the South, we have the advantage of first-hand experience to determine what is relevant. This usually induces us to confront “big” questions – such as institutional building or the formation of social norms – which are not easily tackled by a restrictive economic approach. It requires interdisciplinary work, and I think that many journals in Development Economics are not sufficiently open to that. Third, because the most interesting topics don’t lend themselves to the RCT methodology. For example, I cannot ask a country to turn a blind eye to compliance of laws in order to run a successful experiment. But things are improving; it is wonderful, for example, that the Nobel prize this year was given to Acemoglu, Johnson and Robison for their work on institutions.
Thus, I think that we need to use descriptive evidence and an interdisciplinary approach if it is more suited to the context of the country and reflects the complexity of the reality on the ground. But often, papers by Southern researchers that do so are not published by these journals because of their stringent view on methodology. To share an example, in response to the paper on ‘Regulation of Labor’ cited above, Ravi Kanbur and I had written a paper which also looked at enforcement measures in the countries studied, and shared this with the same journal. However, it was rejected due to lack of exogenous variation in enforcement. We had to move to an interdisciplinary journal, such as the International Labour Review, to get our research published. Many good scholars in the South do not submit their work to Development Economics journals because of these problems.
What is the real-world impact of such exclusion?
I think this approach misses out on what is best for people. Social sciences should exist to inform policymaking and improve these. For instance, and going back to the discussion about labor regulation, while all the studies that I criticized above advocate for deregulation, it is not necessarily true that protective labor laws benefit all workers in all contexts. They can also reduce the demand for labor. Further, giving more power to labor unions, as suggested by some Northern scholars, is not necessarily an offsetting measure because in most developing countries labor unions represent skilled workers leaving out the most vulnerable ones who need protection.
Similarly, the ideological argument that injecting more money into the labor inspectorate will solve all problems in developing countries is not contextualized to local reality. For instance, Malick Diallo and I have studied this issue in a paper where we conducted an ethnographic study in Senegal to find that labor inspectors only visit big and registered firms where there is little violation leaving out most of the informal sector workers. So, the solution is to reform the inspectorate first before putting more money into it.
Unfortunately, these nuances are not captured in mainstream academia due to the existing insistence on a narrow methodological approach, and policy debates are often informed by ideological stances. I believe that giving more voice to researchers living in the South can help improve the system.
Disclaimer: The views and opinions expressed in PEP blog posts are those of the authors and do not necessarily reflect the official policy or position of the Partnership for Economic Policy (PEP).
By Lucas Ronconi PEP Research Fellow, Policy Outreach Committee Professor of Economics, Universidad de Buenos Aires-CONICET, Argentina