Drivers and effects of labour market reforms: Evidence from a novel policy compendium

CPS Researcher Dragos Adascalitei co-authored an article which has been recently published by the IZA Journal of Labor Policy.

Authors: Dragos Adascalitei and Clemente Pignatti Morano

Abstract

The paper analyses the determinants and short-term effects of labour market reforms, using information from a novel policy compendium that covers 110 developed and developing economies between 2008 and 2014. We find that the approval of reforms is positively associated with the unemployment rate, the simultaneous implementation of fiscal consolidation measures and the presence of a fixed exchange rate regime. Differences in the results are explored by looking at the direction of reforms (i.e. increasing or decreasing legislation), temporal horizon (i.e. temporary or permanent measures) and coverage (i.e. complete or two-tier reforms); while also analysing separately reforms' determinants across domains of labour legislation (e.g. permanent contracts, collective dismissals). Finally, we find that deregulatory labour market reforms tend to increase the unemployment rate in the short run when they are approved during contractionary periods—while they have a non-significant effect when approved during periods of economic stability or expansion.

JEL Classification: J20, J52, J38, J48, J58, K31

Keywords: Labour market reforms, Employment protection legislation, Unemployment, Developed economies, Developing economies

Drivers and effects of labour market reforms: Evidence from a novel policy compendium (Download)

The article is also available online here (issue (2016) 5:15).