Working Paper: CEPR ID: DP2420
Authors: Tito Boeri; Giuseppe Nicoletti; Stefano Scarpetta
Abstract: The increasing literature on the interactions between liberalization-integration of product markets and labour market reforms is often highly speculative and draws on a rather weak empirical basis. Cross-country indicators of regulatory frameworks are often lacking, making it difficult to identify the linkages with observed outcomes in the labour and product markets. Moreover, empirical studies have often focussed exclusively on the impact of certain labour market regulations, largely ignoring the role of product market regulations and the interactions between regulatory interventions in the two markets. As a result, while there are convincing theoretical arguments pointing to a potentially positive effect of product market liberalization on labour market performance, empirical investigations of this issue are lacking. This paper aims to provide some preliminary evidence on these issues. In particular, the cross-country patterns and changing profile of product and labour market regulations are identified. Evidence on the relationships between product and labour market regulations is discussed in the context of other policies and institutional factors affecting the labour market; and the clustering and convergence of institutions across countries are characterized. More importantly, the paper reports evidence of a potentially significant impact of product and labour market regulations on employment and its composition. The evidence presented draws heavily on a novel set of cross-country indicators of regulation in the product and labour markets assembled at the OECD. It should be stressed at the outset that these indicators are preliminary estimates and should be taken only as rough approximations of the regulatory stance across OECD countries. (The indicators are used in this paper under the exclusive responsibility of the authors and do not engage the OECD or its Member countries.)
Keywords: Product Market Regulation; Market Regulation; Employment Protection; Regulatory Reform
JEL Codes: J38; K20; L43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stricter product market regulations (L59) | Lower employment rates in the non-agricultural business sector (E69) |
| Tight EPL and restrictive product market regulations (L59) | Lower employment rates (J68) |
| Stricter EPL for regular workers (J89) | Increased proportion of temporary contracts (J63) |
| Higher regulatory burdens for corporations (G38) | Increased self-employment in the non-agricultural business sector (E69) |