Unemployment impact of network sectors and employment protection legislation reforms: Evidence from selected african countries

This paper examines the dynamic effects of Employment Protection Legislation (EPL) reforms and Network Sector reforms on unemployment in selected African countries from 1990 to 2014. Reforms refer to changes in the EPL or Network Sector institutions index. Using local projections combined with augmented inverse probability weighting (LP–AIPW) and Entropy Balancing techniques to address endogeneity concerns, our findings show that EPL reforms reduce unemployment from the first year after their implementation, while Network Sector reforms also lower unemployment, with significant effects emerging from the second year onward. Robustness checks confirm that these results are consistent across alternative specifications, different definitions of reform episodes, and alternative labor-market outcomes such as employment and labor force participation. The heterogeneity analysis shows that both types of reforms reduce unemployment among men and young workers aged 15–24, while significant effects for women are concentrated among young female workers. Finally, we identify key transmission channels through which the reforms operate, including reductions in informality, increases in domestic investment and foreign direct investment, and short-run improvements in total factor productivity.