IDEAS home Printed from https://ideas.repec.org/p/ise/remwps/wp02962023.html
   My bibliography  Save this paper

The impact of endogenous product and labour market reforms on unemployment: New evidence based on local projections

Author

Listed:
  • Rasmus Wiese
  • Jakob de Haan
  • João Tovar Jalles

Abstract

We examine the impact of structural reforms on unemployment in 25 OECD countries between 1970- 2020. Our local projection (LP) results suggest that labour market reforms reduce unemployment, but only after four years (for youth unemployment it takes longer for the effect to set in), while product market reforms have no statistically significant effect on unemployment. However, if we control for the endogeneity of reforms, the effect of labour market reform becomes statistically significant within a year, while product market reforms temporarily increase unemployment. We also find that labour market reforms hardly have an impact on unemployment in the euro area and that labour market reforms do not significantly affect unemployment when the economy is below trend. The effects of structural reforms on unemployment are stronger under high collective bargaining.

Suggested Citation

  • Rasmus Wiese & Jakob de Haan & João Tovar Jalles, 2023. "The impact of endogenous product and labour market reforms on unemployment: New evidence based on local projections," Working Papers REM 2023/0296, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp02962023
    as

    Download full text from publisher

    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0296_2023.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    2. Campos, Nauro F. & Eichenauer, Vera Z. & Sturm, Jan-Egbert, 2020. "Close encounters of the European kind: Economic integration, sectoral heterogeneity and structural reforms," European Economic Review, Elsevier, vol. 129(C).
    3. Niklas Potrafke, 2010. "Does government ideology influence deregulation of product markets? Empirical evidence from OECD countries," Public Choice, Springer, vol. 143(1), pages 135-155, April.
    4. Matteo Cacciatore & Giuseppe Fiori, 2016. "The Macroeconomic Effects of Goods and Labor Marlet Deregulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 1-24, April.
    5. Romain Duval & Davide Furceri, 2018. "The Effects of Labor and Product Market Reforms: The Role of Macroeconomic Conditions and Policies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(1), pages 31-69, March.
    6. Hibbs, Douglas A., 1977. "Political Parties and Macroeconomic Policy," American Political Science Review, Cambridge University Press, vol. 71(4), pages 1467-1487, December.
    7. Benjamin Born & Gernot J. Müller & Johannes Pfeifer, 2020. "Does Austerity Pay Off?," The Review of Economics and Statistics, MIT Press, vol. 102(2), pages 323-338, May.
    8. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 879-907.
    9. 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.
    10. Elżbieta Bednarek-Sekunda & Richard Jong-A-Pin & Jakob de Haan, 2010. "The European Economic and Monetary Union and Labour Market Reform," European Union Politics, , vol. 11(1), pages 3-27, March.
    11. Jakob de Haan & Rasmus Wiese, 2022. "The impact of product and labour market reform on growth: Evidence for OECD countries based on local projections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(4), pages 746-770, June.
    12. Schnabel, Claus, 2020. "Union membership and collective bargaining: Trends and determinants," FAU Discussion Papers in Economics 06/2020, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    13. Alpanda, Sami & Granziera, Eleonora & Zubairy, Sarah, 2021. "State dependence of monetary policy across business, credit and interest rate cycles," European Economic Review, Elsevier, vol. 140(C).
    14. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    15. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    16. Thommen, Yann, 2022. "Reforms of collective bargaining institutions in European Union countries: Bad timing, bad outcomes?," European Journal of Political Economy, Elsevier, vol. 71(C).
    17. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, vol. 103(3), pages 141-146, May.
    18. Gehrke, Britta & Weber, Enzo, 2018. "Identifying asymmetric effects of labor market reforms," European Economic Review, Elsevier, vol. 110(C), pages 18-40.
    19. Alessandro Turrini & Gabor Koltay & Fabiana Pierini & Clarisse Goffard & Aron Kiss, 2015. "A decade of labour market reforms in the EU: insights from the LABREF database," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-33, December.
    20. Rachel Griffith & Rupert Harrison & Gareth Macartney, 2007. "Product Market Reforms, Labour Market Institutions and Unemployment," Economic Journal, Royal Economic Society, vol. 117(519), pages 142-166, March.
    21. Coen N. Teulings & Nikolay Zubanov, 2014. "Is Economic Recovery A Myth? Robust Estimation Of Impulse Responses," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 497-514, April.
    22. Cacciatore, Matteo & Duval, Romain & Fiori, Giuseppe & Ghironi, Fabio, 2016. "Short-term pain for long-term gain: Market deregulation and monetary policy in small open economies," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 358-385.
    23. M. Hashem Pesaran, 2015. "Testing Weak Cross-Sectional Dependence in Large Panels," Econometric Reviews, Taylor & Francis Journals, vol. 34(6-10), pages 1089-1117, December.
    24. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    25. Carrillo-Tudela, Carlos & Launov, Andrey & Robin, Jean-Marc, 2021. "The fall in german unemployment: A flow analysis," European Economic Review, Elsevier, vol. 132(C).
    26. Mikkel Plagborg‐Møller & Christian K. Wolf, 2021. "Local Projections and VARs Estimate the Same Impulse Responses," Econometrica, Econometric Society, vol. 89(2), pages 955-980, March.
    27. Mr. Romain A Duval & Davide Furceri & Bingjie Hu & João Tovar Jalles & Huy Nguyen, 2018. "A Narrative Database of Major Labor and Product Market Reforms in Advanced Economies," IMF Working Papers 2018/019, International Monetary Fund.
    28. Romain Duval & Davide Furceri & Joao Jalles, 2020. "Job protection deregulation in good and bad times," Oxford Economic Papers, Oxford University Press, vol. 72(2), pages 370-390.
    29. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    30. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When?The Political Economy of Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-1.
    31. Drazen, Allan & Grilli, Vittorio, 1993. "The Benefit of Crises for Economic Reforms," American Economic Review, American Economic Association, vol. 83(3), pages 598-607, June.
    32. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    33. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2012. "Employment Effects of Product and Labour Market Reforms: Are There Synergies?," Economic Journal, Royal Economic Society, vol. 122(558), pages 79-104, February.
    34. Glynn, Adam N. & Quinn, Kevin M., 2010. "An Introduction to the Augmented Inverse Propensity Weighted Estimator," Political Analysis, Cambridge University Press, vol. 18(1), pages 36-56, January.
    35. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    36. Bradley, Jake & Kügler, Alice, 2019. "Labor market reforms: An evaluation of the Hartz policies in Germany," European Economic Review, Elsevier, vol. 113(C), pages 108-135.
    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. Jakob de Haan & Rasmus Wiese, 2022. "The impact of product and labour market reform on growth: Evidence for OECD countries based on local projections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(4), pages 746-770, June.
    2. Povilas Lastauskas & Julius Stak.enas, 2024. "Labor Market Policies in High- and Low-Interest Rate Environments: Evidence from the Euro Area," Papers 2410.12024, arXiv.org.
    3. Campos, Nauro F. & De Grauwe, Paul & Ji, Yuemei, 2023. "Structural reforms and economic performance: the experience of advanced economies," LSE Research Online Documents on Economics 120870, London School of Economics and Political Science, LSE Library.
    4. Lastauskas, Povilas & Stakėnas, Julius, 2020. "Labor market reforms and the monetary policy environment," European Economic Review, Elsevier, vol. 128(C).
    5. Romain Duval & Davide Furceri & Joao Jalles, 2020. "Job protection deregulation in good and bad times," Oxford Economic Papers, Oxford University Press, vol. 72(2), pages 370-390.
    6. Rasmus Wiese & Joåo Tovar Jalles & Jakob de Haan & João Tovar Jalles, 2024. "Labour Market Counter-Reforms in OECD Countries: Conditional Impact on Output and Employment Growth," CESifo Working Paper Series 11199, CESifo.
    7. Bouis, Romain & Duval, Romain & Eugster, Johannes, 2020. "How fast does product market reform pay off? New evidence from non-manufacturing industry deregulation in advanced economies," Journal of Comparative Economics, Elsevier, vol. 48(1), pages 198-217.
    8. Thommen, Yann, 2022. "Reforms of collective bargaining institutions in European Union countries: Bad timing, bad outcomes?," European Journal of Political Economy, Elsevier, vol. 71(C).
    9. Tovar Jalles, João & Park, Donghyun & Qureshi, Irfan, 2024. "Public and Private Investment as Catalysts for Growth: An analysis of emerging markets and developing economies with a focus on Asia," Journal of International Money and Finance, Elsevier, vol. 148(C).
    10. Duval, Romain & Furceri, Davide & Tovar Jalles, João, 2022. "Labor and product market reforms and external Imbalances: Evidence from advanced economies," Journal of International Money and Finance, Elsevier, vol. 121(C).
    11. Alberto Alesina & Davide Furceri & Jonathan D Ostry & Chris Papageorgiou & Dennis P Quinn, 2024. "Structural Reforms and Elections: Evidence from a World-Wide New Dataset," Journal of the European Economic Association, European Economic Association, vol. 22(4), pages 1936-1980.
    12. Cacciatore, Matteo & Duval, Romain & Furceri, Davide & Zdzienicka, Aleksandra, 2021. "Fiscal multipliers and job-protection regulation," European Economic Review, Elsevier, vol. 132(C).
    13. Romain Duval & Davide Furceri & Jakob Miethe, 2021. "Robust political economy correlates of major product and labor market reforms in advanced economies: Evidence from BAMLE for logit models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(1), pages 98-124, January.
    14. Rieth, Malte & Wittich, Jana, 2020. "The impact of ECB policy on structural reforms," European Economic Review, Elsevier, vol. 122(C).
    15. Povilas Lastauskas & Julius Stakénas, 2019. "Does It Matter When Labor Market Reforms Are Implemented? The Role of the Monetary Policy Environment," CESifo Working Paper Series 7844, CESifo.
    16. Peter Gal & Alexander Hijzen, 2016. "The short-term impact of product market reforms: A cross-country firm-level analysis," OECD Economics Department Working Papers 1311, OECD Publishing.
    17. Fabio Schiantarelli, 2016. "Do product market reforms stimulate employment, investment, and innovation?," IZA World of Labor, Institute of Labor Economics (IZA), pages 266-266, June.
    18. Campos, Nauro F. & Eichenauer, Vera Z. & Sturm, Jan-Egbert, 2020. "Close encounters of the European kind: Economic integration, sectoral heterogeneity and structural reforms," European Economic Review, Elsevier, vol. 129(C).
    19. Moretti, Laura, 2014. "Inflation targeting and product market deregulation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 372-386.
    20. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.

    More about this item

    Keywords

    unemployment; structural reforms; local projections; endogeneity of reforms; nonlinearities; collective bargaining; AIPW;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    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:ise:remwps:wp02962023. 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: Sandra Araújo (email available below). General contact details of provider: https://rem.rc.iseg.ulisboa.pt/ .

    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.