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Labor and Product Market Deregulation; Partial, Sequential, or Simultaneous Reform?

  • Helge Berger
  • Stephan Danninger

This study explores the effects of labor and product market deregulation on employment growth. Our empirical results, based on an OECD country panel from 1990-2004, suggest that lower levels of product and labor market regulation foster employment growth, including through sizable interaction effects. Based on these findings, the paper develops a theoretical framework for evaluating deregulation strategies in the presence of reform costs. Optimal deregulation takes various forms depending on the deregulation costs, the strength of reform interactions, and the perspective of the policymaker. Unless deregulation costs are very asymmetric across markets, optimal deregulation requires some form of coordination.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/227.

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Length: 35
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/227
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  7. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
  8. Lawrence Kahn, 2003. "Labour Market Institutions and Unemployment in OECD Countries," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(4), pages 25-32, October.
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  16. Mathias Dewatripont & Gérard Roland, 1995. "The design of reform packages under uncertainty," ULB Institutional Repository 2013/9607, ULB -- Universite Libre de Bruxelles.
  17. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  18. Boss, Alfred & Elendner, Thomas, 2005. "Incentives to work: The case of Germany," Kiel Working Papers 1237, Kiel Institute for the World Economy (IfW).
  19. Fertig, Michael & Kluve, Jochen, 2004. "A Conceptual Framework for the Evaluation of Comprehensive Labor Market Policy Reforms in Germany," RWI Discussion Papers 13, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI).
  20. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
  21. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
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  23. Dennis J. Snower & David T. Coe, 1996. "Policy Complementarities; The Case for Fundamental Labor Market Reform," IMF Working Papers 96/93, International Monetary Fund.
  24. Potters, J.J.M. & van Winden, F.A.A.M., 1996. "Models of interest groups : Four different approaches," Other publications TiSEM 989c7739-9342-4fdc-82ee-e, Tilburg University, School of Economics and Management.
  25. Michael Burda, 2000. "Product Market Regulation and Labor Market Outcomes: How can Deregulation Create Jobs?," CESifo Working Paper Series 230, CESifo Group Munich.
  26. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  27. Sébastien Jean & Giuseppe Nicoletti, 2004. "Regulation and Wage Premia," Working Papers 2004-12, CEPII research center.
  28. Adriana D. Kugler & Giovanni Pica, 2006. "The Effects of Employment Protection and Product Market Regulations on the Italian Labour Market," Chapters, in: Labour Market Adjustments in Europe, chapter 4 Edward Elgar Publishing.
  29. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  30. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
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  32. Stephen Nickell, 2003. "Labour Market Institutions and Unemployment in OECD Countries," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(2), pages 13-26, October.
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