The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries?

IMF Working Papers, May 9, 2018

Source details

Canonical URL: The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries?

Authors: Romain A Duval, Davide Furceri, Jakob Miethe
Date: May 9, 2018
Paper series: IMF Working Papers, Working Paper No. 2018/101
Core objective: Test a large set of variables for robust correlation with major past labor and product market reforms in advanced countries using a new database and a tailored econometric technique.

Introduces a new version of the Bayesian averaging of maximum likelihood estimates (BAMLE) technique tailored to binary logit models.
Leverages a new database of major past labor and product market reforms in advanced countries.
Tests a large set of hypotheses from the political economy literature for robust empirical support.

Crisis-induced reform hypothesis:
- "Widespread support for the crisis-induces-reform hypothesis."
Outside and international pressure:
- "Outside pressure increases the likelihood of reform in certain areas: reforms are more likely when other countries also undertake them and when there is formal pressure to implement them."
- "International pressure ... most relevant for product market ... reforms."
Political factors:
- "Political factors are most relevant for ... job protection reforms."
Area-specific correlates:
- Some robust correlates are specific to certain reform areas (e.g., product market vs. job protection).

External crises can catalyze reform implementation.
Cross-country diffusion and formal external pressure can increase reform likelihood in certain policy areas.
Policymakers should consider the differing importance of international pressure and domestic political factors across reform domains (product market reform versus job protection reform).

Subject: Commodity markets, Employment protection, Expenditure, Financial markets, Labor, Labor market reforms, Macrostructural analysis, Public investment and public-private partnerships (PPP), Structural reforms
Keywords: Bayesian averaging of maximum likelihood estimates, business cycle, centralization gov., Commodity markets, deregulation, Eastern Europe, employment protection, EU country, government coalition, government party majority, government vote share, labor market, Labor market reforms, left-of-center government, party majority, political economy, political orientation, political system, product market, product market deregulation, product market flexibility, product market reform, Public investment and public-private partnerships (PPP), Southern Europe, Structural reforms, unemployment benefit, unemployment benefits, WP