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

Céline Piton () and Francois Rycx ()
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Céline Piton: National Bank of Belgium

No 11582, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper provides robust estimates of the impact of both product and labour market regulations on unemployment using data for 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 tends to push up the unemployment rate. Labour 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 of 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. While men and women are equally affected by product and labour market deregulations, workers distinguished by age and by 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; labour market; regulation; employment protection (search for similar items in EconPapers)
JEL-codes: E24 E60 J48 J64 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-eur, nep-lab and nep-mac
Date: 2018-06
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