Who demands labor (de)regulation in the developing world? Revisiting the Insider–Outsider Theory

Abstract

The “insider-outsider” perspective has come to dominate the discourse on labor regulations. It argues that protective regulations hurt the less well-off outsiders but are kept in place because of the interests of the insiders, those who are covered by the regulations. But if the insider-outsider divide were as depicted in the standard representation, outsiders would be strongly against regulations. However, we present evidence that in fact a large majority of outsiders in developing countries support protective labor regulations, calling for a rethink of a sharp insider-outsider divide. We suggest a number of avenues for exploration, including income sharing, transitions, fairness, and employer power in labor markets.