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Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?

  • Fiori, Giuseppe

    ()

    (North Carolina State University)

  • Nicoletti, Giuseppe

    ()

    (OECD)

  • Scarpetta, Stefano

    ()

    (OECD)

  • Schiantarelli, Fabio

    ()

    (Boston College)

This paper provides a systematic empirical investigation of the effect of product market liberalization on employment when there are interactions between policies and institutions in product and labor markets. Using panel data for OECD countries over the period 1980-2002, we present evidence that product market deregulation is more effective at the margin when labor market regulation is high. Moreover, there is evidence in our sample that product market deregulation promotes labor market deregulation. We show that these results are mostly consistent with the basic predictions of a standard bargaining model, such as Blanchard and Giavazzi (2003), extended to allow for a richer specification of the fall back position of the union and for taxation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2770.

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Length: 46 pages
Date of creation: May 2007
Date of revision:
Publication status: published as "Employment Effects of Product and Labour Market Reforms: Are There Synergies?" in: Economic Journal, 2012, 122 (558), 79-104
Handle: RePEc:iza:izadps:dp2770
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  1. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
  2. Christian Haefke & Monique Ebell, 2004. "The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle," 2004 Meeting Papers 759, Society for Economic Dynamics.
  3. Takeshi Koyama & Stephen S. Golub, 2006. "OECD's FDI Regulatory Restrictiveness Index: Revision and Extension to more Economies," OECD Working Papers on International Investment 2006/4, OECD Publishing.
  4. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
  5. Helge Berger & Stephan Danninger, 2006. "The Employment Effects of Labor and Product Markets Deregulation and their Implications for Structural Reform," CESifo Working Paper Series 1709, CESifo Group Munich.
  6. Ebell, Monique & Haefke, Christian, 2003. "Product Market Deregulation and Labor Market Outcomes," IZA Discussion Papers 957, Institute for the Study of Labor (IZA).
  7. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  8. Martín Rama & Guido Tabellini, . "Lobbying by Capital and Labor over Trade and Labor Market Policies," Working Papers 94, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Boeri, Tito & Conde-Ruiz, J. Ignacio & Galasso, Vincenzo, 2003. "Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?," IZA Discussion Papers 834, Institute for the Study of Labor (IZA).
  10. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, Productivity and Growth: OECD Evidence," OECD Economics Department Working Papers 347, OECD Publishing.
  11. Schiantarelli, Fabio, 2005. "Product market regulation and macroeconomic performance : a review of cross-country evidence," Policy Research Working Paper Series 3770, The World Bank.
  12. Bruno Amable & Lilas Demmou & Donatella Gatti, 2006. "Institutions, unemployment and inactivity in the OECD countries," PSE Working Papers halshs-00590495, HAL.
  13. Romain Duval & Jørgen Elmeskov, 2005. "The Effects of EMU on Structural Reforms in Labour and Product Markets," OECD Economics Department Working Papers 438, OECD Publishing.
  14. Jens Høj & Vincenzo Galasso & Giuseppe Nicoletti & Thai-Thanh Dang, 2006. "The Political Economy of Structural Reform: Empirical Evidence from OECD Countries," OECD Economics Department Working Papers 501, OECD Publishing.
  15. Messina, Julian, 2006. "The role of product market regulations in the process of structural change," European Economic Review, Elsevier, vol. 50(7), pages 1863-1890, October.
  16. Stephen Nickell, 2004. "Employment and taxes," LSE Research Online Documents on Economics 19955, London School of Economics and Political Science, LSE Library.
  17. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, . "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  18. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Regulation and Economic Performance: Product Market Reforms and Productivity in the OECD," OECD Economics Department Working Papers 460, OECD Publishing.
  19. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Product Market Reforms and Employment in OECD Countries," OECD Economics Department Working Papers 472, OECD Publishing.
  20. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  21. Nicholas Crafts, 2006. "Regulation and Productivity Performance," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 186-202, Summer.
  22. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
  23. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
  24. Takeshi Koyama & Stephen S. Golub, 2006. "OECD's FDI Regulatory Restrictiveness Index: Revision and Extension to more Economies," OECD Economics Department Working Papers 525, OECD Publishing.
  25. Amable, Bruno & Gatti, Donatella, 2001. "The Impact of Product Market Competition on Employment and Wages," IZA Discussion Papers 276, Institute for the Study of Labor (IZA).
  26. Robert J. Flanagan, 1999. "Macroeconomic Performance and Collective Bargaining: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1150-1175, September.
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