Labor and Product Market Deregulation: Partial, Sequential, or Simultaneous Reform?

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.This study explores the effects of labor and product market deregulation on employment growth. Our empirical results, based on an OECD country panel from 1990-2004, suggest that lower levels of product and labor market regulation foster employment growth, including through sizable interaction effects. Based on these findings, the paper develops a theoretical framework for evaluating deregulation strategies in the presence of reform costs. Optimal deregulation takes various forms depending on the deregulation costs, the strength of reform interactions, and the perspective of the policymaker. Unless deregulation costs are very asymmetric across markets, optimal deregulation requires some form of coordination. JEL Classification Numbers: L51, E24, J50

Regulation and shadow economy: empirical evidence for 25 OECD-countries

“…Reducing the labour market regulation density in Germany (81 points) on the level of the cluster of Scandinavian countries (52 points) could therefore lead to 1.3 up to 2.5 million additional jobs, depending on the OLS-model. Berger and Daninger (2005) obtain in their study for the IMF similar results.…”

The Employment Effects of Labor and Product Market Deregulation and Their Implications for Structural Reform

“…An intuitive explanation for the underlying economic mechanics can be derived, for instance, from a simple static framework with monopolistic competition and a labor supply that is sensitive to the level of labor market regulation (Berger and Danninger, 2005). In this model, lower product market regulation increases competition and also raises the elasticity of labor demand with respect to real wages.…”

“…The introduction of political economy considerations would add another source of inefficiency to the model even without assuming endogenous political costs (see Berger and Danninger, 2005). Consider a single decision maker that, in addition to the economic reform costs considered by the social planner, also takes into account political costs or suffers from benefit myopia introduced by a short-lived political cycle.…”

“…4 Much of this work was done at approximately the same time. See, for instance, the working paper version of our paper (Berger and Danninger, 2005). For examples of earlier work see Boeri, Nicoletti, and Scarpetta (2000); and Nicoletti and Scarpetta (2005).…”

Foreign Direct Investment from Emerging Markets to Africa: The HRM Context

“…It can be argued that the primary determinant of FDI is the relative strength of private property rights and, by implication, relative weakness of the rights of employees under the law (Berger & Danninger, 2005;Javorcik & Spatareanu, 2005;Lehmann & Muravyev, 2009). La Porta et al (2008) suggest that this, in turn, is determined by legal origin.…”