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The impact of labor market deregulation on productivity: a panel data analysis of 19 OECD countries (1960-2004)

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  • Robert Vergeer
  • Alfred Kleinknecht

Abstract

Mainstream economists argue that unemployment can be reduced by deregulation of labor markets, that is, by easier firing, reduction of minimum wages and social benefits, and so forth. Our panel data analysis shows that wage-cost saving flexibilization of labor markets has a negative impact on labor productivity growth. A one percentage point change in growth rates of real wages leads to a change in labor productivity growth by 0.31-0.39 percentage points. This cannot solely be explained by hiring low-productive labor. Flexibilization of labor markets leads to a labor-intensive growth path that is problematic with an aging population in Europe.

Suggested Citation

  • Robert Vergeer & Alfred Kleinknecht, 2010. "The impact of labor market deregulation on productivity: a panel data analysis of 19 OECD countries (1960-2004)," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 33(2), pages 371-408, January.
  • Handle: RePEc:mes:postke:v:33:y:2010:i:2:p:371-408
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    Citations

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    Cited by:

    1. Palokangas, Tapio K., 2014. "The Political Economy of Labor Market Regulation with R&D," IZA Discussion Papers 8147, Institute for the Study of Labor (IZA).
    2. Anna S. Burger, 2015. "Extreme Working Hours in Western Europe and North America: A New Aspect of Polarization," LIS Working papers 649, LIS Cross-National Data Center in Luxembourg.
    3. Storm, Servaas. & Naastepad, C.W.M., 2012. "Wage-led or profit-led supply : wages, productivity and investment," ILO Working Papers 994709303402676, International Labour Organization.
    4. Caiani, Alessandro & Russo, Alberto & Gallegati, Mauro, 2016. "Does Inequality Hamper Innovation and Growth?," MPRA Paper 71864, University Library of Munich, Germany.
    5. Caiani, Alessandro & Russo, Alberto & Gallegati, Mauro, 2017. "Are higher wages good for business? An assessment under alternative innovation and investment scenarios," MPRA Paper 80439, University Library of Munich, Germany.
    6. Engelbert Stockhammer & Ozlem Onaran, 2013. "Wage-led growth: theory, evidence, policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(1), pages 61-78, January.
    7. repec:eme:rpeczz:s0161-723020170000032006 is not listed on IDEAS
    8. Sangjun Jeong, 2017. "Biased Technical Change and Economic Growth: The Case of Korea, 1970–2013," Research in Political Economy,in: Return of Marxian Macro-Dynamics in East Asia, volume 32, pages 81-103 Emerald Publishing Ltd.
    9. Anna S. Burger, 2015. "Extreme working hours in Western Europe and North America: A new aspect of polarization," LEQS – LSE 'Europe in Question' Discussion Paper Series 92, European Institute, LSE.
    10. repec:eee:ecosys:v:41:y:2017:i:4:p:492-512 is not listed on IDEAS

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