Labor market inclusion and labor productivity

Policies for economic growth are guided by two aims: i) to enhance productivity per unit of labor, and ii) to ensure maximum utilization of the accessible labor resources. There is a potential tradeoff between these two objectives. Productivity per unit of labor can be improved by laying off the least productive workers, whereas full employment – including persons with limited work capacity – can hardly be achieved without dragging down productivity per unit down. This project provides an analytical framework for analyzing labor productivity both from a private/firm perspective and from a social efficiency perspective in order to i. facilitate a characterization of firms in terms of their private and social contribution to value added, ii. provide tools for improving cost-benefit-analyses of already implemented and/or considered market reforms or reorganizations, and iii. assess the origins of any conflicts between private and social efficiency, and provide guidance to how they can be minimized. The project is a cooperation between the Frisch Centre and Statistics Norway. The project is well under way, but there are few results so far. In the first phase of the project, we analyze the contribution of different types of businesses to growth and value creation in Norway, for example, based on the size and age of the businesses, as well as characteristics of the owner. This work involves the development of methods for estimating the opportunity cost of both used and unused labor resources, with a focus on people's risk of dropping out of the labor market. With such a tool, we can analyze companies' contribution to value creation from both a business and social economic point of view. The work involves the use and linking of various types of register data for persons, companies and ownership. As part of the evaluation of the potential for value creation among people with reduced working capacity, we have also carried out analyzes of how various labor market programs aimed at this group affect the probability of finding regular work. Preliminary results indicate significant positive effects. Overall, we estimate that participation in measures for this group increases the probability of entering regular work during a three-year period by approximately 15 percentage points. In one part of the project, we look at how the reorganization of public enterprises, e.g. in the form of exposure to competition, affects recruitment and working conditions in affected businesses, with possible consequences for the inclusion and exclusion of marginal labor. In a first study, we looked at differences in pay and sickness absence between commercial and municipally run nursing homes. We find no systematic differences in the sickness absence pattern. In Oslo, significant wage differences are found between the two sectors, with employees at commercial nursing homes in the capital earning around 14 per cent less than employees at municipal nursing homes, when we have controlled for age, gender, occupation and professional experience. The differences are significantly smaller outside Oslo. (Øien et al., Magma research and science, 2023).

Policies for economic growth are guided by two aims: i) to enhance productivity per unit of labor, and ii) to ensure maximum utilization of the accessible labor resources. There is a potential tradeoff between these two objectives. Productivity per unit of labor can be improved by laying off the least productive workers, whereas full employment – including persons with limited work capacity – can hardly be achieved without dragging down productivity per unit down. This project provides an analytical framework for analyzing labor productivity both from a private/firm perspective and from a social efficiency perspective in order to i. facilitate a characterization of firms in terms of their private and social contribution to value added, ii. provide tools for improving cost-benefit-analyses of already implemented and/or considered market reforms or reorganizations, and iii. assess the origins of any conflicts between private and social efficiency, and provide guidance to how they can be minimized. The project will develop a method for estimating the opportunity cost of used and unused labor resources in the economy, with a focus on marginal labor. We then plan to use this (and other) tools to examine the consequences of various technological, market, and political shocks to the labor market, and how institutional characteristics affect the consequences of such shocks with respect to labor market inclusion. We focus on technological progress embedded in digitalization and automation, imported shocks to the economy, and effects of outsourcing and privatization of public services.