Labor and Product Market Reforms in Advanced Economies: Fiscal Costs, Gains, and Support

By Angana Banerji, Valerio Crispolti, Era Dabla-Norris, Romain A Duval, Christian H Ebeke, Davide Furceri, Takuji Komatsuzaki, Tigran Poghosyan

March 13, 2017

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Angana Banerji, Valerio Crispolti, Era Dabla-Norris, Romain A Duval, Christian H Ebeke, Davide Furceri, Takuji Komatsuzaki, and Tigran Poghosyan. Labor and Product Market Reforms in Advanced Economies: Fiscal Costs, Gains, and Support, (USA: International Monetary Fund, 2017) accessed September 20, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

Product and labor market reforms are needed to lift persistently sluggish growth in advanced economies. But reforms have progressed slowly because of concerns about their distributive and short-term economic effects. Our analysis, based on new empirical and numerical analysis and country case-studies shows that most labor and product market reforms can improve public debt dynamics over the medium-term. This because reforms raise output by boosting employment and/or labor productivity. But the effect of some labor market reforms on budgetary outcomes and fiscal sustainability depends critically on business cycle conditions. Our evidence also suggests that some temporary and well-designed up-front fiscal stimulus can help enhance the economic impact of reforms. In the past, countries have used fiscal incentives in the past to facilitate reforms by alleviating transition and social costs. But strong ownership of reforms was crucial for their successful implementation.

Subject: Employment, Fiscal policy, Fiscal stimulus, Labor, Labor market reforms, Tax incentives

Keywords: Active Labor Market Policy, Deregulation, Employment, Employment Protection, Financing burden, Fiscal Policy, Fiscal stimulus, Global, Labor Market, Labor market reforms, Labor Tax, Product Market, Product market deregulation, Product market reform, Public Debt, SDN, Self-financing condition, Structural Reforms, Unemployment Benefits

Publication Details

Pages:

120
Volume:

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DOI:

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Issue:

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Series:

Staff Discussion Notes No. 2017/003
Stock No:

SDNEA2017003
ISBN:

9781475583977
ISSN:

2617-6750

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