Labor and Product Market Reforms and External Imbalances: Evidence from Advanced Economies
Labor and Product Market Reforms and External Imbalances: Evidence from Advanced Economies

Author: Mr.Romain A Duval

Publisher: International Monetary Fund

Published: 2021-02-26

Total Pages: 31

ISBN-13: 1513570749

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We explore the impact of major labor and product market reforms on current account dynamics using a new “narrative” database of major changes in employment protection for regular workers and product market regulation for non-manufacturing industries covering 26 advanced economies over the past four decades. Our main finding is that product market deregulation is associated with a weakening of the current account, while labor market deregulation is associated with an improvement. These effects are transitory and driven by both saving and investment responses. Labor and product market reforms both have a more positive impact on the current account balance when implemented under weak macroeconomic conditions. Our results are broadly consistent with predictions from recent DSGE models with endogenous producer entry and labor market frictions.

Employment Protection Deregulation and Labor Shares in Advanced Economies
Employment Protection Deregulation and Labor Shares in Advanced Economies

Author: Gabriele Ciminelli

Publisher: International Monetary Fund

Published: 2018-08-16

Total Pages: 72

ISBN-13: 1484373723

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Labor market deregulation, intended to boost productivity and employment, is one plausible, yet little studied, driver of the decline in labor shares that took place across most advanced economies since the early 1990s. This paper assesses the impact of job protection deregulation in a sample of 26 advanced economies over the period 1970-2015, using a newly constructed dataset of major reforms to employment protection legislation for regular contracts. We apply the local projection method to estimate the dynamic response of the labor share to our reform events at both the country and the country-industry levels. For the latter, we employ a differences-in-differences identification strategy using two identifying assumptions grounded in theory—namely that job protection deregulation should have larger negative effects in industries characterized by (i) a higher “natural” propensity to adjust the workforce, and (ii) a lower elasticity of substitution between capital and labor. We find a statistically significant, economically large and robust negative effect of deregulation on the labor share. In particular, illustrative back-of-the-envelope calculations suggest that job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies. Together with existing evidence regarding the macroeconomic gains from job protection and other labor market reforms, our results also point to the need for policymakers to address efficiency-equity trade-offs when designing such reforms.

Labor and Product Market Reforms in Advanced Economies
Labor and Product Market Reforms in Advanced Economies

Author: Angana Banerji

Publisher: International Monetary Fund

Published: 2017-03-13

Total Pages: 120

ISBN-13: 1475583974

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Product and labor market reforms are needed to lift persistently sluggish growth in advanced economies. But reforms have progressed slowly because of concerns about their distributive and short-term economic effects. Our analysis, based on new empirical and numerical analysis and country case-studies shows that most labor and product market reforms can improve public debt dynamics over the medium-term. This because reforms raise output by boosting employment and/or labor productivity. But the effect of some labor market reforms on budgetary outcomes and fiscal sustainability depends critically on business cycle conditions. Our evidence also suggests that some temporary and well-designed up-front fiscal stimulus can help enhance the economic impact of reforms. In the past, countries have used fiscal incentives in the past to facilitate reforms by alleviating transition and social costs. But strong ownership of reforms was crucial for their successful implementation.

Regulatory Reform and Labor Markets
Regulatory Reform and Labor Markets

Author: James Peoples

Publisher: Springer Science & Business Media

Published: 2012-12-06

Total Pages: 399

ISBN-13: 9401148562

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Regulatory reform represents a major shift in the government's role toward price determination in the transportation and telecommunication industries. The resulting policy emphasizes dependence on market forces to set prices and to encourage efficient production techniques. While extensive research investigates the influence of deregulation on prices, profits and productivity, the effect on labor markets has not received the same scrutiny. Firms in these industries are of major importance to business operations in other industries because they provide the critical services of transporting goods and transmitting information. This may partly explain such extensive research on the product market aspects of regulatory reform. Examining labor markets in the transportation and telecommunications industries is also highly warranted, as historically these industries represented some of the most heavily unionized sectors in the economy. The extent to which regulatory reform has encouraged product market competition may not necessarily result in the same degree of competition across industries. Regulatory Reform and Labor Markets debates the notion that research on regulatory reform and labor markets should develop within the framework of the competitive model. This is achieved by presenting diverging views on wage and employment determination in distinctly different deregulated industries.

What is the Impact of Increased Business Competition?
What is the Impact of Increased Business Competition?

Author: Sónia Félix

Publisher: International Monetary Fund

Published: 2019-12-13

Total Pages: 57

ISBN-13: 1513521519

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This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in its first four years of implementation. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. Standard models of firm dynamics, which assume a constant elasticity of substitution, are inconsistent with the expansionary and heterogeneous response across incumbent firms. We show that in a model with heterogeneous firms and variable markups the most productive firms face a lower demand elasticity and expand their employment in response to increased entry.

Greening Industries and Creating Jobs
Greening Industries and Creating Jobs

Author: Bela Galgoczi

Publisher: ETUI

Published: 2012

Total Pages: 227

ISBN-13: 287452249X

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How the objective of a resource-efficient low carbon economy is to be reached and how the transition is managed are the key issues addressed by this publication. The two main focuses are industrial policy and employment prospects on the road to a green economy that retains its industrial base. Any lasting recovery of the real economy will necessarily take the shape of a more resource-efficient production model. While we argue that only a more ambitious and comprehensive European climate policy framework would have a chance of delivering the broader 2050 climate targets, this does not mean that Europe has to give up its industrial base and its related competences. Several chapters of this book argue that the option of attaining a low-carbon economy through ‘deindustrialisation’ would prevent Europe from preserving its competitiveness and knowledge base, which are also essential for exploiting the potential of the emerging eco-industry. While decoupling economic growth from resource use is also possible with an industrial base that is more energy-and resource-efficient, this does require a fundamental shift in terms of how the economy is managed and how business decisions are made. Sustainable industrial and structural policies are needed also in order to ensure that this revolutionary process takes place in a socially balanced manner.

Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India
Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India

Author: Rahul Anand

Publisher: International Monetary Fund

Published: 2016-03-07

Total Pages: 61

ISBN-13: 1513557874

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This paper investigates the implications of lowering formal regulations in labor and product markets on informality and macroeconomic outcomes in India. We estimate a DSGE model with an informal sector, and rigidities in the formal labor and product markets. Along with increasing GDP and employment, deregulation also leads to lower informality and greater product market competition. Slow reallocation of resources between the formal and informal sectors leads to some adverse impacts in the short run that can be minimized by implementing a combined package of reforms. These impacts are shown to be greater in an economy with a larger informal sector.