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

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  • Helge Berger
  • Stephan Danninger

Abstract

This study explores the effects of labor and product market deregulation on employment growth. Our empirical results, based on an Organization for Economic Cooperation and Development country sample from 1990 to 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 discusses a theoretical framework for evaluating deregulation strategies in the presence of reform costs. Optimal deregulation takes various forms depending on the deregulation costs and the strength of reform interactions. Compared with the first-best policy, decentralized decision making can lead to excessive or insufficient deregulation. IMF Staff Papers (2007) 54, 591–619. doi:10.1057/palgrave.imfsp.9450014

Suggested Citation

  • Helge Berger & Stephan Danninger, 2007. "The Employment Effects of Labor and Product Market Deregulation and Their Implications for Structural Reform," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 591-619, July.
    • Handle: RePEc:pal:imfstp:v:54:y:2007:i:3:p:591-619
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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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