## Who Dares, Wins: Labor Market Reforms and Sovereign Yields

_IMF Working Papers, June 28, 2017_

## Source details

**Canonical URL:** [Who Dares, Wins: Labor Market Reforms and Sovereign Yields](https://www.imf.org/en/publications/wp/issues/2017/06/28/who-dares-wins-labor-market-reforms-and-sovereign-yields-44861)

## Other formats

- [Markdown version](/en/publications/wp/issues/2017/06/28/who-dares-wins-labor-market-reforms-and-sovereign-yields-44861/index.md)
- [Structured JSON version](/en/publications/wp/issues/2017/06/28/who-dares-wins-labor-market-reforms-and-sovereign-yields-44861/index.json)
- [Bundle manifest](/en/publications/wp/issues/2017/06/28/who-dares-wins-labor-market-reforms-and-sovereign-yields-44861/bundle-manifest.json)

## Bibliographic details
- Authors: Christian H Ebeke
- Published: June 28, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475595857.001

---

### Executive summary
- The paper shows that investors value the adoption of structural reforms by lending at lower cost.
- The reform-induced reduction of long-term yields is bigger when reforms are initiated in good times and in countries facing high borrowing costs.
- There is no statistical evidence that markets systematically punish countries that launch reforms concomitantly with fiscal stimulus.
- Structural reforms lead to a short-lived overshooting of yields when followed by strikes or lockouts.
- Controlling for endogeneity issues does not reject the central finding of the paper.
- Results are confirmed when using sovereign credit ratings as an alternative dependent variable.
- Two main implications:
  - (i) on average, labor market reforms lower borrowing costs; and
  - (ii) country-specific circumstances also play a role.

### Key findings and empirical results
- Investors lower lending costs following the adoption of structural (labor market) reforms.
- The magnitude of long-term yield reductions:
  - Larger when reforms are initiated in good times.
  - Larger in countries facing high borrowing costs.
- No statistical evidence that simultaneous fiscal stimulus with reforms leads to market punishment.
- Social context effect:
  - Structural reforms followed by strikes or lockouts induce a short-lived overshooting of yields.
- Robustness:
  - Controlling for endogeneity does not overturn the central result.
  - Using sovereign credit ratings as an alternative dependent variable confirms the results.

### Policy implications
- On average, labor market reforms can be expected to lower sovereign borrowing costs.
- Timing and country context matter: initiating reforms in good times and addressing high borrowing-cost environments can amplify yield benefits.
- Policymakers should consider the social context and potential for labor disputes, which can temporarily reverse market gains.
- Coordinating reform design and communication to minimize disruptive labor actions may preserve favorable market responses.
- There is no broad empirical reason to avoid reforms because of concurrent fiscal stimulus; markets do not systematically punish such combinations.

### Subject coverage and keywords (as provided)
- Subject: Banking crises, Bond yields, Employment protection, Financial crises, Financial institutions, Labor, Macrostructural analysis, Output gap, Production, Structural reforms
- Keywords: Banking crises, Bond yields, control group, country outlook, dependent variable, Employment protection, Global, Institutions, Long-term bond yields, long-term yield, Output gap, reforming country, Structural reforms, WP, yield, yield country

### Publication metadata (selected exact values from source)
- Pages: 33
- Volume: 2017
- Issue: 141
- Series: Working Paper No. 2017/141
- DOI: https://doi.org/10.5089/9781475595857.001
- Stock No: WPIEA2017141
- ISBN: 9781475595857
- ISSN: 1018-5941
- Author and date (as presented): ByChristian H Ebeke; June 28, 2017

*Source: IMF Working Paper "Who Dares, Wins: Labor Market Reforms and Sovereign Yields" (June 28, 2017).*

---

## Content in this bundle

- **Who Dares, Wins: Labor Market Reforms and Sovereign Yields, WP/17/141, June 2017**
  - [Who Dares, Wins: Labor Market Reforms and Sovereign Yields, WP/17/141, June 2017 (Markdown version)](/-/media/files/publications/wp/2017/wp17141.pdf.md){rel="alternate" type="text/markdown"}
  - [Who Dares, Wins: Labor Market Reforms and Sovereign Yields, WP/17/141, June 2017 (PDF)](/-/media/files/publications/wp/2017/wp17141.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2017/06/28/who-dares-wins-labor-market-reforms-and-sovereign-yields-44861_