IDEAS home Printed from https://ideas.repec.org/p/cbr/cbrwps/wp547.html

The Effects of Labour Laws on Productivity, Employment, Unemployment and the Labour Share of National Income: Analysis of New Evidence from the Cambridge Leximetric Database, with a UK-China Comparison

Author

Listed:
  • Simon Deakin
  • Kamelia Pourkermani

Abstract

We report the results of an econometric analysis of the effects of labour laws in the UK and China. For data on labour laws we draw on the 2023 update of the CBR-LRI index, part of the Cambridge Leximetric Database, which codes for labour laws around the world between 1970 and 2022. The longitudinal coverage of the CBR-LRI enables us to use time-series techniques which model dynamic changes in an economy over time. We employ impulse response function analysis to estimate the effects of labour laws on indicators of efficiency (productivity, employment and unemployment) and distribution (labour’s share of national income). We find that stronger labour laws in the UK are associated with rising employment and falling unemployment, while those in China are associated with rising productivity. We also observe positive impacts of labour laws on the labour share in both countries. Breaking down our results according to particular types of labour law, the positive employment effect we see in the UK is associated with stronger working time protections, while the positive productivity effect in China is associated with more protective laws regulating flexible forms of employment and with stronger dismissal laws. Assessing our results, we suggest that they speak to the importance of labour laws for avoiding regression, in the British case, to a low-cost, low productivity economy, and, in China’s case, for helping bridge the ‘middle income gap’ to sustainable development. More generally, our findings imply the need for adjustment to standard models of the role of labour laws in the economy and to the policy advice which they generate, to the following effect: labour laws, by disciplining capital, contribute to its more productive use.

Suggested Citation

  • Simon Deakin & Kamelia Pourkermani, 2026. "The Effects of Labour Laws on Productivity, Employment, Unemployment and the Labour Share of National Income: Analysis of New Evidence from the Cambridge Leximetric Database, with a UK-China Comparison," Working Papers wp547, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp547
    as

    Download full text from publisher

    File URL: https://www.jbs.cam.ac.uk/wp-content/uploads/2026/02/cbr-wp547.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2000), pages 109-154.
    2. Micco, Alejandro & Pagés, Carmen, 2006. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," IZA Discussion Papers 2433, IZA Network @ LISER.
    3. John T. Addison & Paulino Teixeira & Jean-Luc Grosso, 2000. "The Effect of Dismissals Protection on Employment: More on a Vexed Theme," Southern Economic Journal, Southern Economic Association, vol. 67(1), pages 105-122, July.
    4. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    5. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
    6. Zhang, Shangfeng & Zhang, Chaojie & Su, Zitian & Zhu, Mengyue & Ren, Huiru, 2023. "New structural economic growth model and labor income share," Journal of Business Research, Elsevier, vol. 160(C).
    7. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    8. Daniele Checchi & Cecilia García-Peñalosa, 2008. "Labour market institutions and income inequality [‘Globalisation and the great U-turn: Income inequality trends in 16 OECD countries’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 23(56), pages 602-649.
    9. Bruce E. Kaufman, 2007. "The impossibility of a perfectly competitive labour market," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(5), pages 775-787, September.
    10. repec:bla:ecpoli:v:23:y:2008:i::p:601-649 is not listed on IDEAS
    11. Servaas Storm, 2019. "Labor Laws and Manufacturing Performance in India: How Priors Trump Evidence and Progress Gets Stalled," Working Papers Series 90, Institute for New Economic Thinking.
    12. Simon Jäger & Shakked Noy & Benjamin Schoefer, 2022. "What Does Codetermination Do?," ILR Review, Cornell University, ILR School, vol. 75(4), pages 857-890, August.
    13. Deakin, Simon & Wilkinson, Frank, 2005. "The Law of the Labour Market: Industrialization, Employment, and Legal Evolution," OUP Catalogue, Oxford University Press, number 9780198152811.
    14. Gindis, David & Hodgson, Geoffrey M. & Huang, Kainan & Pistor, Katharina, 2017. "Legal institutionalism: Capitalism and the constitutive role of lawAuthor-Name: Deakin, Simon," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 188-200.
    15. Michela Nardo & Michaela Saisana & Andrea Saltelli & Stefano Tarantola & Anders Hoffmann & Enrico Giovannini, 2005. "Handbook on Constructing Composite Indicators: Methodology and User Guide," OECD Statistics Working Papers 2005/3, OECD Publishing.
    16. Scarpetta, Stefano & Tressel, Thierry, 2004. "Boosting productivity via innovation and adoption of new technologies : any role for labor market institutions?," The Social Policy and Labor Discussion Paper Series 29144, The World Bank.
    17. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 91-134.
    18. Gabriele Ciminelli & Romain Duval & Davide Furceri, 2022. "Employment Protection Deregulation and Labor Shares in Advanced Economies," The Review of Economics and Statistics, MIT Press, vol. 104(6), pages 1174-1190, November.
    19. Robert G. Blanton & Dursun Peksen, 2019. "Labor Laws and Shadow Economies: A Cross‐National Assessment," Social Science Quarterly, Southwestern Social Science Association, vol. 100(5), pages 1540-1565, August.
    20. John T. Addison & Paulino Teixeira & Jean‐Luc Grosso, 2000. "The Effect of Dismissals Protection on Employment: More on a Vexed Theme," Southern Economic Journal, John Wiley & Sons, vol. 67(1), pages 105-122, July.
    21. Simon Deakin, 2018. "The Use of Quantitative Methods in Labour Law Research: An Assessment and Reformulation," Working Papers wp495, Centre for Business Research, University of Cambridge.
    22. Belloc, Filippo, 2019. "Institutional complementarities between labour laws and innovation," Journal of Institutional Economics, Cambridge University Press, vol. 15(2), pages 235-258, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emiliano Brancaccio & Fabiana De Cristofaro & Raffaele Giammetti, 2020. "No Consensus In The Imf-Oecd 'Consensus': A Meta-Analysis On The Employment Impact Of Labour Deregulations," Working Papers 445, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    2. Fox, Louise & Oviedo, Ana Maria, 2008. "Institutions and labor market outcomes in Sub-Saharan Africa," Policy Research Working Paper Series 4721, The World Bank.
    3. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, IZA Network @ LISER.
    4. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
    5. Pablo Lavado & Gustavo Yamada, 2013. "Fear of Labor Rigidities – The Role of Expectations in Employment Growth in Peru," Working Papers 13-16, Centro de Investigación, Universidad del Pacífico.
    6. Abiodun O. Folawewo, 2016. "Institutions, regulatory framework and labour market outcomes in Nigeria," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 18(1), pages 67-84, October.
    7. Kaplan, David S., 2009. "Job creation and labor reform in Latin America," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 91-105, March.
    8. Dragos Adascalitei & Sameer Khatiwada & Miguel Á. Malo & Pignatti Moran, 2015. "Employment protection and collective bargaining during the great recession: a comprehensive review of international evidence," Revista de Economía Laboral - Spanish Journal of Labour Economics, Asociación Española de Economía Laboral - AEET, vol. 12, pages 50-87.
    9. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications - Books, The World Bank Group, number 14922, April.
    10. Milan Vodopivec, 2006. "Choosing a System of Unemployment Income Support: Guidelines for Developing and Transition Countries," The World Bank Research Observer, World Bank, vol. 21(1), pages 49-89.
    11. James J. Heckman & Carmen Pagés, 2004. "Introduction to "Law and Employment: Lessons from Latin American and the Caribbean"," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 1-108, National Bureau of Economic Research, Inc.
    12. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    13. John Addison & Paulino Teixeira, 2005. "What Have We Learned about the Employment Effects of Severance Pay? Further Iterations of Lazear Et al," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(3), pages 345-368, September.
    14. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," The Social Policy and Labor Discussion Paper Series 62726, The World Bank.
    15. Tatiana Karabchuk, 2016. "The subjective well-being of women in Europe: children, work and employment protection legislation," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 15(2), pages 219-245, November.
    16. Almeida, Rita & Carneiro, Pedro, 2006. "Enforcement of Regulation, Informal Labour, Firm Size and Firm Performance," CEPR Discussion Papers 5976, C.E.P.R. Discussion Papers.
    17. Almeida, Rita K. & Carneiro, Pedro, 2005. "Enforcement of Regulation, Informal Labor and Firm Performance," IZA Discussion Papers 1759, IZA Network @ LISER.
    18. Horst Feldmann, 2005. "Labour Market Institutions and Labour Market Performance in Transition Countries," Post-Communist Economies, Taylor & Francis Journals, vol. 17(1), pages 47-82.
    19. P R Agénor, 2005. "The Analytics of Segmented Labor Markets," Centre for Growth and Business Cycle Research Discussion Paper Series 52, Economics, The University of Manchester.
    20. Ruffo Hernán & Caullo Laura & Capello Marcelo, 2024. "Efectos de una reforma de la indemnización por despido en Argentina," Asociación Argentina de Economía Política: Working Papers 4760, Asociación Argentina de Economía Política.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • J83 - Labor and Demographic Economics - - Labor Standards - - - Workers' Rights
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbr:cbrwps:wp547. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ruth Newman (email available below). General contact details of provider: http://www.jbs.cam.ac.uk .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.