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A Bitter Medicine? Short-term Employment Impact of Deregulation in Network Industries

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  • Bassanini, Andrea

    (OECD)

Abstract

There is evidence that pro-competitive reforms in an industry with large incumbents induce the latter to re-organise and reduce prices in an attempt to deter entry of new competitors. Using data for three broadly-defined network industries in 23 OECD countries and covering over 30 years, I show that such re-organization has sizable negative short-term effects on industry employment. The employment losses, which last at least 3 years, are larger when reforms are implemented during downturns and insignificant when they take place in upturns. These findings contrast with previous evidence that deregulation in retail distribution has no (or even positive) short-term employment effects. This discrepancy is likely driven by the much larger employment share of small incumbents, with no margins of efficiency improvement, in retail than in network industries (as well as many other industries). Evidence on the immediate effect of removing entry barriers on industry prices and productivity is consistent with the hypothesis that the initial contraction of industry employment is the result of incumbents re-organising and downsizing before the entry of new competitors.

Suggested Citation

  • Bassanini, Andrea, 2015. "A Bitter Medicine? Short-term Employment Impact of Deregulation in Network Industries," IZA Discussion Papers 9187, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9187
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    References listed on IDEAS

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    Cited by:

    1. Mr. Romain A Duval & Romain Bouis & Johannes Eugster, 2016. "Product Market Deregulation and Growth: New Country-Industry-Level Evidence," IMF Working Papers 2016/114, International Monetary Fund.
    2. Ana Fontoura Gouveia & Gustavo Monteiro & Sílvia Fonte Santa, 2019. "Product Markets’ Deregulation: A more Productive, more Effcient and more Resilient Economy?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 230(3), pages 125-155, September.
    3. Dragos Adascalitei & Clemente Pignatti Morano, 2016. "Drivers and effects of labour market reforms: Evidence from a novel policy compendium," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-32, December.
    4. 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.
    5. Luiza Antoun de Almeida & Vybhavi Balasundharam, 2018. "On the Impact of Structural Reforms on Output and Employment: Evidence from a Cross-country Firm-level Analysis," IMF Working Papers 2018/073, International Monetary Fund.
    6. Petia Topalova & Mr. Sergi Lanau, 2016. "The Impact of Product Market Reforms on Firm Productivity in Italy," IMF Working Papers 2016/119, International Monetary Fund.

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    More about this item

    Keywords

    barriers to entry; structural reforms; job destruction; short-term costs; optimal timing of reforms;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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