Is deregulation of product and labour markets promoting employment and productivity? A difference-in-differences approach

Abstract

This paper examines the impact of labour and product market reforms on sectoral employment and productivity, following a difference-in-differences approach. Using industry-level data for the period 1997-2013, we show that employment protection deregulation has a positive effect on sectoral employment for industries more exposed to labour market legislation, despite having a non-positive impact on productivity. Upstream product market deregulation also increases sectoral employment for the downstream sectors more dependent on upstream inputs. Nevertheless, it has mixed effects on sectoral productivity: while upstream sectors face productivity losses, the downstream sectors more exposed to the deregulated sectors grasp productivity gains.