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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Product Market Reforms and Employment in OECD Countries
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- Giuseppe Nicoletti, Stefano Scarpetta1
- Author Affiliations
- 1: OECD, France
- 16 Dec 2005
- Bibliographic information
We estimate the employment effects of product market reforms aimed at increasing competitive pressures and easing government controls in a sample of OECD countries over the past two decades. We control for several labour market policies and institutions that are thought to influence equilibrium employment rates, and check whether there are interactions between these policies and product market reforms. We find cross-country evidence that some labour and product market policies may be complementary and adjust for this in regressions. Consistent with the implications of the imperfect competition/bargaining model of Blanchard and Giavazzi (2003), our estimates suggest that restrictive regulations have curbed employment rates significantly in countries where no product market reforms were implemented. These effects appear to have been magnified by the interaction of such regulations with labour market settings that provide a strong bargaining power to insiders, suggesting that rent sharing tends to depress employment. The implication is that significant employment gains can be obtained by deregulating product markets in overly regulated countries. Moreover, these employment gains are likely to be higher in countries that have rigid labour markets.
- product market regulation, policy complementarity, labour market policies, employment performance
- JEL Classification:
- J38: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Public Policy
- K20: Law and Economics / Regulation and Business Law / General
- L43: Industrial Organization / Antitrust Issues and Policies / Legal Monopolies and Regulation or Deregulation