External shocks and labor market reforms in autocracies and democracies: evidence from oil price windfalls

Markus Brueckner, Gabriele Ciminelli and Norman Loayza
Authors registered in the RePEc Author Service: Markus Brueckner

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We examine the relationship between oil price windfalls and labor market regulation empirically through panel regressions in a sample of 83 countries spanning the 1970-2014 period. We find that oil price windfall gains lead to a deregulation of the labor market in autocracies but have no effects in democracies. Windfall losses instead cause a substantial deregulation in democracies but have no effects in autocracies. We then consider possible transmission channels. Democracies appear to redistribute the rents stemming from a positive windfall by increasing government expenditures. Rent extraction and economic efficiency considerations are both plausible drivers of the deregulation following windfall gains in autocracies, as expenditures are not raised, while GDP and employment gradually increase after positive windfalls. The deregulation following windfall losses in democracies is instead consistent with the crisis-induced-reform hypothesis, as the windfall loss induce a sharp deterioration of the current account and budget balances.

Keywords: oil price; windfalls; labor market; deregulation; political institutions (search for similar items in EconPapers)
JEL-codes: F16 J41 O13 P11 P16 Q02 (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-ene
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Working Paper: External Shocks and Labor Market Reforms in Autocracies and Democracies: Evidence from Oil Price Windfalls (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2024-696

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