The Unassuming Economist

A new IMF working paper by Gabriele Ciminelli, Romain Duval, and Davide Furceri investigates “the impact of job protection deregulation in a sample of 26 advanced economies over the period 1970-2015, using a newly constructed dataset of major reforms to employment protection legislation for regular contracts” and finds “a statistically significant, economically large and robust negative effect of deregulation on the labor share. In particular, illustrative back-of-the-envelope calculations suggest that job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies. Together with existing evidence regarding the macroeconomic gains from job protection and other labor market reforms, [these] results also point to the need for policymakers to address efficiency-equity trade-offs when designing such reforms.”