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Unemployment Impact of Product and Labor Market Regulation: Evidence from European Countries

Piton Céline () and Francois Rycx
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Piton Céline: National Bank of Belgium, Université libre de Bruxelles (SBS-EM), Boulevard de Berlaimont 14, 1000Brussels, Belgium

IZA Journal of Labor Policy, 2019, vol. 9, issue 1, 32

Abstract: This paper provides robust estimates of the impact of both product and labor market regulations on unemployment using data from 24 European countries over the period 1998–2013. Controlling for country fixed effects, endogeneity, and a large set of covariates, results show that product market deregulation overall reduces the unemployment rate. This finding is robust across all specifications and in line with theoretical predictions. However, not all types of reforms have the same effect: deregulation of state controls and in particular involvement in business operations tend to push up the unemployment rate. Labor market deregulation, proxied by the employment protection legislation index, is detrimental to unemployment in the short run, while a positive impact (i.e., a reduction in the unemployment rate) occurs only in the long run. Analysis by sub-indicators shows that reducing protection against collective dismissals helps in reducing the unemployment rate. The unemployment rate equation is also estimated for different categories of workers. Although men and women are equally affected by product and labor market deregulations, workers distinguished by age and educational attainment are affected differently. In terms of employment protection, young workers are almost twice as strongly affected as older workers. Regarding product market deregulation, highly educated individuals are less impacted than low- and middle-educated workers.

Keywords: unemployment; structural reform; product market; labor market; regulation; employment protection (search for similar items in EconPapers)
JEL-codes: E24 E60 J48 J64 L51 (search for similar items in EconPapers)
Date: 2019
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Working Paper: The Unemployment Impact of Product and Labour Market Regulation: Evidence from European Countries (2018) Downloads
Working Paper: The unemployment impact of product and labour market regulation: evidence from European countries (2018) Downloads
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