Labor regulation reforms can influence employment creation, earnings, and workers’ well-being, as well as the economic performance of firms. While there is extensive literature on labor regulations, most focus on OECD countries and some major emerging economies. Labor regulations and their impacts are not nearly as well documented and understood elsewhere.

As part of the World Bank’s recent Mongolia Jobs Diagnostic, we highlight key findings from the recent labor law reform in Mongolia. Mongolia’s experience is interesting for two reasons. First, as a small, resource-rich country now seeking to diversify and modernize its economy, Mongolia’s assets and its challenges are common among many low- and middle-income countries. Second, in considering policy reforms, Mongolia has been grappling with how to update a regulatory framework to respond to a rapidly changing economic and social context.

In 2022, Mongolia enacted a new Labor Law that replaced legislation adopted in the days after its transition from a planned to a market economy in the early 1990s. Our review of the new legislation found that the new law generally brought Mongolia’s labor regulations more in line with practices in other countries and ILO international standards, most notably by introducing new protections for workers. The new regulations are still relatively flexible, and the review carried out for the Jobs Diagnostic suggests they are not a hindrance to job creation.

Mongolia’s recent reform points to two priorities for effectively regulating labor markets in developing countries to respond to changes in their economies and their societies: modernizing labor regulations and improving enforcement and compliance.

Modernizing labor regulations

Labor laws need to respond to changes in the economic and social contexts in which they operate. The nature of work is shifting rapidly with the expansion of non-standard employment, such as platform work, which raises issues that differ from those associated with industrial jobs. Meanwhile, changing family roles and emerging pressures on both men and women to balance work and family responsibilities calls for regulatory approaches that accommodate these new realities. While developed countries have been implementing reforms to reflect these trends, this is not the case in most developing countries, despite the fact that they are being affected by similar developments.

Mongolia’s new law considers these changes in the organization of work and in society. By introducing provisions that recognize non-standard forms of employment while providing more support for working families, the reform aims to improve overall job quality and to encourage labor force participation.

The law defines labor rights and working conditions for part-time, remote, and home-based work, which were not included in the old law. The general principle is that all forms of work should be treated equally. For example, the law states that home-based workers should access the same labor rights as full-time employees working at the employer’s workplace.

At the same time, the law reflects the evolution of parenting roles and the need for reconciling work and family life, adopting a gender-balanced approach. Mongolia provided 120 days of maternity leave in the old law. The new law introduces paid leave for fathers (at least 10 working days), which was not in the old law. As in the old law, employers also need to grant parental leave for childcare if a mother or father with a child under three years of age submits such a request. While lengthy leaves may potentially discourage employers from hiring workers with children, especially women, and there are other hindrances such as social norms on gendered roles, providing legal rights for parental leave for both women and men is still a key step to promoting gender equality.

Improving enforcement and compliance

Effective regulation depends not only on content but also on enforcement. While Mongolia’s new labor law puts worker protection more in line with changing realities and international standards, it does not fully address the issue of how to ensure compliance.

The new labor law gives inspectors the right to inspections without prior notification to employers, but in reality, this right cannot be exercised because it does not comply with the Law on State Inspection that prohibits inspections without prior notification to employers. There is currently a draft law on “Temporary Suspension of Certain Types of State Inspection Activities,” which proposes a temporary suspension of scheduled inspections for three years. Additionally, the law does not change the fact that labor inspections are conducted in response to complaints from employees who must identify themselves. This has a chilling effect on complaints and enforcement.

Finally, Mongolia will have limited capacity to enforce the new law. While it has expanded coverage to more work forms and a wider set of workplace issues, inspection agencies do not have increased resources commensurate with their responsibilities. There were only 85 registered labor inspectors in 2020, which means there was one inspector for about 14,000 employed people.

There has been evidence of significant non-compliance in the past. This includes not providing overtime benefits, paying less than the legal minimum wage, and excessive working hours (Figure 1). The average number of weekly working hours was 51 hours in 2019, which is higher than the 40 hours regulated by law, and 22.8 percent of all workers worked more than 60 hours per week. Unless the inspection procedures and resources are improved, it is unlikely that the Labor Law, including its new features, will achieve the desired objectives.

Figure 1: Percentage of inspected entities not complying with the law in Mongolia

Figure on percentage of inspected entities not complying with the law in Mongolia

Source: Data obtained from General Agency for Specialized Inspection (GASI).

Mongolia’s new labor law has features that address the rapidly changing world of work. However, it is equally important to minimize the gap between the regulations stated in the books and their effective implementation. Developing countries have typically been stretched to reduce this gap because of limited resources and high levels of informal economic activity.

This challenge will only increase as labor law must now cover a proliferation of employment forms, changing concepts of the “workplace,” and more diverse workforces. Mobilizing more resources and introducing innovations in enforcement need to be prioritized for achieving effective labor market regulation in Mongolia and other developing countries.

(source: world bank)