Structural Reforms and Labor Reallocation: A Cross-Country Analysis

Khalid ElFayoumi, Anta Ndoye, Sanaa Nadeem and Allan Gregory Auclair

No 2018/064, IMF Working Papers from International Monetary Fund

Abstract: Institutional and market frictions impose costs on the reallocation of labor from low to high productivity sectors, leading to suboptimal allocations and a loss in aggregate labor productivity. Using cross-country sector-level data, we use a dynamic panel error correction model to compute the speed of sectoral labor adjustment, as well as the contribution of structural reforms in governance, labor and product markets, trade and openness, and the financial sector to lowering the costs of labor reallocation. We find that, on average, sectoral employment shares converge towards equilibrium allocations, closing about 13.7 percent of labor productivity gaps each year; this speed of labor adjustment varies across sectors and income groups. On structural reforms, we find a significant association between more efficient labor reallocation and financial market liberalization, less bureaucracy, strong judicial and regulatory environment, trade liberalization, better education and more flexible labor and product markets.

Keywords: WP; product market; Growth; labor productivity; structural change; productivity gap; labor productivity calculation; productivity sector; TFP productivity; productivity growth; sector TFP; product market reform; Productivity; Total factor productivity; Structural reforms; Global; Middle East; Eastern Europe; North Africa; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 41
Date: 2018-03-19
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Citations: View citations in EconPapers (1)

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