grants to incentivize firms to incorporate worker performance into their wage and personnel system.<sup>150</sup> Public sector reform can lead the way by softening seniority wage practices, fully or partially moving towards performance-based pay.

**Similarly, governments can reform social contributions and employment protection legislation to lower costs while ensuring adequate social protection support** . This can include reforming systems for severance pay and different entitlements that often increase automatically with tenure. Labor regulations in several countries have undergone reform in the past decades, as policymakers attempt to balance the need to protect workers with the need to allow for flexible solutions that do not unduly limit labor demand. The evidence on such reforms and employment effects is generally mixed, however. A broad conclusion is that when extreme forms are avoided, the impact on employment is modest.<sup>151</sup> The evidence of payroll tax cuts on employment is likewise varied. Some cross-country studies point to substantial increases in employment (Latin America) and reductions in informality (Central and Eastern Europe and Latin America). Other country-level studies of payroll tax cuts, however, show both low to no employment effects (Argentina, Chile), and significant employment effects (Colombia, Türkiye).<sup>152</sup> As a guideline, policy makers could strive for a “flexicurity” approach which combines broader reforms to severance pay and other benefits with permanent contracts that reduce labor costs while increasing effective protection of workers in case of employment shocks.<sup>153</sup> For example, reforms need to be combined with policies that strengthen unemployment benefit systems, which remain underdeveloped in many L/MICs.<sup>154</sup> Reduction in social contributions needs to be paired with increased financing of social protection through general taxation.<sup>155</sup>

## **Wage subsidies are intended to help address both high labor costs and information asymmetries**

**about worker competence but require strong targeting and timing to deliver benefits.** Wage subsidies reduce the cost of labor for some time (compensating for the fact that a worker may be more unproductive in the beginning of employment) and help employers reduce hiring risks by providing them with the opportunity to evaluate skill levels more comprehensively than is possible in the hiring process. Evidence from North Macedonia on wage subsidies (not age-specific) suggests that, when well designed and targeted, such subsidies can help disadvantaged groups overcome information constraints or externalities.<sup>156</sup> Yet they often suffer from low uptake and low sustainability over the long run.<sup>157</sup> Experience from Finland and Belgium suggests that wage subsidies specifically targeted to older workers may delay early retirement but carry such deadweight losses that they are not cost effective. Subsidized work appears simply to displace unsubsidized work, with little net gain in employment of older workers.<sup>158</sup>

# Addressing ageism

## **Age anti-discrimination laws (ADL) exist in many developing countries, but weak enforcement may**

**render them less effective** . An overview from 2008 showed that laws that prohibit discrimination in

150 OECD 2019b. 151 Betcherman 2015, World Bank 2022b. 152 Pagés 2017. 153 OECD 2019b. 154 ILO 2021. 155 Packard et al. 2019. 156 Armand et al. 2020. 157 McKenzie 2017a.

158 Vodopevic et al. 2019, Boockmann 2015.

27