This paper assesses the impact of job protection deregulation on the labor share in a sample of 26 advanced economies during the 1970-2013 period, using a newly constructed dataset of major reforms in this area. We employ a difference-in-differences identification strategy using two identifying assumptions grounded in theory-deregulation has larger effects in industries characterized by (i) a higher "natural" propensity to regularly adjust the workforce and (ii) a lower elasticity of substitution between capital and labor. We find significant negative effects of deregulation on the labor share, contributing to about a tenth of its observed decline in advanced economies.
Ciminelli, G., Duval, R., Furceri, D. (2022). Employment Protection Deregulation and Labor Shares in Advanced Economies. THE REVIEW OF ECONOMICS AND STATISTICS, 104(6), 1174-1190 [10.1162/rest_a_00983].
Employment Protection Deregulation and Labor Shares in Advanced Economies
Furceri, Davide
2022-01-01
Abstract
This paper assesses the impact of job protection deregulation on the labor share in a sample of 26 advanced economies during the 1970-2013 period, using a newly constructed dataset of major reforms in this area. We employ a difference-in-differences identification strategy using two identifying assumptions grounded in theory-deregulation has larger effects in industries characterized by (i) a higher "natural" propensity to regularly adjust the workforce and (ii) a lower elasticity of substitution between capital and labor. We find significant negative effects of deregulation on the labor share, contributing to about a tenth of its observed decline in advanced economies.
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