Reforming Labor and Product Markets : Some Lessons from Two Decades of Experiments in Europe

Author/Editor:

Tito Boeri

Publication Date:

May 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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. 05/97

Subject:

English

Publication Date:

May 1, 2005

ISBN/ISSN:

9781451861167/1018-5941

Stock No:

WPIEA2005097

Format:

Paper

Pages:

34

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