{
  "title": "Employment Protection Deregulation and Labor Shares in Advanced Economies",
  "publication": "IMF Working Papers, August 16, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/08/16/employment-protection-deregulation-and-labor-shares-in-advanced-economies-46074",
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  "summary": "Labor market deregulation, intended to boost productivity and employment, is one plausible, yet little studied, driver of the decline in labor shares that took place across most advanced economies since the early 1990s.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Research question: assess the impact of job protection deregulation on labor shares in advanced economies.\n- Sample: 26 advanced economies.\n- Sample period: 1970-2015.\n- Paper type: IMF Working Paper by Gabriele Ciminelli, Romain A Duval, and Davide Furceri (August 16, 2018)."
    },
    {
      "heading": "Methodology",
      "content": "- Dataset: newly constructed dataset of major reforms to employment protection legislation for regular contracts.\n- Country-level analysis: local projection method to estimate the dynamic response of the labor share to reform events.\n- Country-industry analysis: differences-in-differences identification strategy with two theory-grounded identifying assumptions:\n  - (i) larger negative effects in industries with a higher “natural” propensity to adjust the workforce;\n  - (ii) larger negative effects in industries with a lower elasticity of substitution between capital and labor.\n- Outcome variable: labor share (as used in the paper’s empirical framework)."
    },
    {
      "heading": "Key empirical findings",
      "content": "- The paper finds a statistically significant, economically large and robust negative effect of deregulation on the labor share.\n- Illustrative back-of-the-envelope calculation: job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies.\n- Evidence supports heterogeneity in effects across industries based on propensity to adjust workforce and elasticity of substitution between capital and labor."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Policymakers need to address efficiency-equity trade-offs when designing job protection deregulation and other labor market reforms.\n- The negative effect of deregulation on labor shares implies potential distributional consequences that should be weighed against macroeconomic gains from reforms."
    },
    {
      "heading": "Research scope and context",
      "content": "- Focus: employment protection deregulation for regular contracts in advanced economies.\n- Contextual positioning: contributes to literature on drivers of declining labor shares since the early 1990s.\n- Complementary evidence: results should be considered together with existing evidence regarding macroeconomic gains from job protection and other labor market reforms.\n\nSource: Gabriele Ciminelli, Romain A Duval, and Davide Furceri (August 16, 2018), IMF Working Paper No. 2018/186.\n\n---\n\n Content in this bundle\n\n- Employment Protection Deregulation and Labor Shares in Advanced Economies, WP/18/186, August 2018\n  - Employment Protection Deregulation and Labor Shares in Advanced Economies, WP/18/186, August 2018 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Employment Protection Deregulation and Labor Shares in Advanced Economies, WP/18/186, August 2018 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/08/16/employment-protection-deregulation-and-labor-shares-in-advanced-economies-46074"
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    "Authors: Gabriele Ciminelli, Romain A Duval, Davide Furceri",
    "Published: August 16, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484370087.001",
    "Research question: assess the impact of job protection deregulation on labor shares in advanced economies.",
    "Sample: 26 advanced economies.",
    "Sample period: 1970-2015.",
    "Paper type: IMF Working Paper by Gabriele Ciminelli, Romain A Duval, and Davide Furceri (August 16, 2018).",
    "Dataset: newly constructed dataset of major reforms to employment protection legislation for regular contracts.",
    "Country-level analysis: local projection method to estimate the dynamic response of the labor share to reform events.",
    "Country-industry analysis: differences-in-differences identification strategy with two theory-grounded identifying assumptions:",
    "Outcome variable: labor share (as used in the paper’s empirical framework).",
    "The paper finds a statistically significant, economically large and robust negative effect of deregulation on the labor share.",
    "Illustrative back-of-the-envelope calculation: job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies.",
    "Evidence supports heterogeneity in effects across industries based on propensity to adjust workforce and elasticity of substitution between capital and labor.",
    "Policymakers need to address efficiency-equity trade-offs when designing job protection deregulation and other labor market reforms.",
    "The negative effect of deregulation on labor shares implies potential distributional consequences that should be weighed against macroeconomic gains from reforms.",
    "Focus: employment protection deregulation for regular contracts in advanced economies.",
    "Contextual positioning: contributes to literature on drivers of declining labor shares since the early 1990s.",
    "Complementary evidence: results should be considered together with existing evidence regarding macroeconomic gains from job protection and other labor market reforms.",
    "**Employment Protection Deregulation and Labor Shares in Advanced Economies, WP/18/186, August 2018**"
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