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Economic activity continued to firm up in 2015, driven by domestic demand. After coming in at 6 percent in 2014, GDP growth accelerated to 6.28 percent during the first half of 2015, the fastest first-half-of-the-year growth rate in the past five years. The recovery was driven by strong activity in manufacturing and construction, which together contributed nearly half of overall GDP growth. Retail sales also performed strongly, posting 8.3 percent (in real terms) in the first six months of 2015, up from 6.3 percent in 2014. However, despite the pickup in retail activity, overall services (which account for nearly 40 percent of GDP) rose modestly at 5.9 percent in the first half of 2015. In part, this reflected a struggling tourism sector, with tourist visits in the first six months down by 11 percent year-on-year. On the demand side, stronger growth was driven by investment (spurred by strong FDI inflows) and stronger private consumption boosted by low inflation. The contribution of net exports turned negative as sluggish external demand weighed on export growth while strengthened domestic activity continued to fuel import growth.

The study includes an analysis of inequality patterns in terms of labor force participation as well as a review of policy responses, and areas for possible further policy action. In particular, the report looks at the two main dimensions of inequality that characterize Macedonia’s labor market: gender and ethnicity. Almost half the female working age population is inactive, whereas male inactivity is considerably lower. Labor market outcomes also vary significantly with ethnicity. In particular, a strong interaction exists between gender and ethnicity, with ethnic minority women forming a particularly vulnerable group. Hence, it is worthwhile to investigate in more detail how gender and ethnicity shape the Macedonian labor market, and how public policy could be used to increase labor market participation and job opportunities for women and ethnic minorities. This report is organized as follows. First, the report describes the main characteristics of the Macedonian labor market, emphasizing the most important patterns of inequality in terms of labor market participation (section two). Section three addresses the possible causes of these inequality patterns. Section four discusses potential policy responses and concludes.

This report, funded by the Trust Fund for Environmentally and Socially Sustainable Development (TFESSD), seeks to identify labor market inequalities in the ten countries outlined above, to relate these inequalities to other forms of social exclusion, and to propose areas for policy action aimed at boosting labor market participation. The remainder of the report is structured as follows. Chapter two describes the role that jobs play in fostering good living standards, productivity and social cohesion, and contextualizes the discussion on jobs and participation in the ten countries. Chapter three zooms in, highlighting inequalities in labor force participation across demographic groups. Chapter four shifts the focus to the factors explaining unequal labor force participation across groups, and discusses a policy agenda for these ten countries, drawing on experiences from the rest of the world. Chapter five concludes.

This study explores how labor markets have adjusted to temporary business cycle fluctuations since (at least) the 1990s. It focuses on how changes in macroeconomic conditions affect the evolving nature of labor-market adjustments on the other hand. The study pays particular attention to the role of low inflation and international trade in shaping labor-market adjustment. The main focus of the report is on employment, wages and informality. The report analyzes how they are affected by business cycles, and on how low inflation and the nature of external shocks affects labor market dynamics. It is organized as follows. Chapter 1 provides an overview of the cyclical macroeconomic behavior of wages in four LAC countries. Importantly, rather than examining the average cyclical pattern of wages, it focuses on the time varying patterns in the relationship between wages, employment and output. The second part of Chapter 2 studies downward wage rigidities with sectoral data. Chapter 3 moves from wages to quantitative labor-market adjustments and attempts to the answer what limits the expansion of formal employment in LAC? The chapter studies differences, similarities and linkages between formal and informal employment over the business cycle to understand the frustrating persistence of informal employment in the region. Chapter 4 takes a close look at the adjustment of formal labor markets in Northern Mexico during the United States recession of 2008-09. Chapter 5 turns our attention to the distributional costs of recessions by examining how returns to schooling fluctuate with the business cycle, and how they respond to different types of economic shocks. Chapter 6 concludes with a brief summary of the findings and some thoughts about policy implications.

We analyze the effects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within firms. In our model, two tasks contribute to non-verifiable firm value and affect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence of a wage floor, it is optimal to assign the tasks to different agents whenever the agents' reservation utility is not too large. Under such a job design, the principal can tailor incentives according to each task's marginal productivity. By contrast, with a relatively large wage floor, the principal gradually lowers effort incentives to avoid rent payments to the agents, even before the wage floor exceeds the agents' reservation utility. If the wage floor is sufficiently large, the principal hires only one agent even though this leads to a distortion of effort across tasks or the non-execution of one task altogether.