Reforming Labor and Product Markets: Some Lessons from Two Decades of Experiments in Europe
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Summary:
This paper evaluates European structural reforms over the last 20 years, in light of economic theory predictions about interactions between labor and product market reforms. Reforms in labor markets occur at higher frequencies than in product market, which are, however, more coherent. These asymmetries can be explained by the nature of political obstacles to reforms in the two domains. Labor market reforms can exploit institutional trade-offs; notably, reforms can trade labor market flexibility with state-provided unemployment insurance and can be applied only to new entrants in the market without affecting the set of regulations applied to existing workers. These two-tier strategies are infeasible in product markets, since incumbent firms can easily drive away new entrants. In product markets, however, it is possible to shift responsibilities to supranational authorities, resisting pressures of national lobbies.
Series:
Working Paper No. 2005/097
Subject:
Commodity markets Employment protection Labor market reforms Labor markets Unemployment
English
Publication Date:
May 1, 2005
ISBN/ISSN:
9781451861167/1018-5941
Stock No:
WPIEA2005097
Pages:
34
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