Structural Reforms

Structural Reforms

1. Pro-competitive product market regulation

   • Direct consequences
     • Immediate re-organisation of large incumbents and gradual expansion of succesful entrants
       • No impact in the long-run
         • Fall in prices
           • CONCLUSION
       • Efficience enhancing
     • Implemented in upswings
     • Implemented in downswings
       • Not neglectable employment losses
   • Indirect consequences
     • Inputs are cheaper
       • Improved competitiveness and expansion
       • Long-run positive effect on employment, +1% at country level in the sector most dependent on the policy
         • Benefits from services deregulation are stronger among manufacturing producers than in other services producers
           • Largest gains are generated in markets exposed to international competitive pressures where even small productivity advantages entail large increases in market shares
           • Short-run costs in terms on industry-level employment costs. Long-run better quality and lower prices
             • Lifting barriers would bring job losses in concentrated markets, in fact large incumbents would re-organise and reduce overstaffing becoming more efficient

2. Employment Protection Legislation: set of rules governing the hiring and the firing of workers

   • Effects on the labour market
     • Medium/long term effects of flexibility have, at worst, no or limited positive impact on employment levels in the long run
       • Short run rare empirical studies but theoretically it has costly effects in both terms of wages and employment
   • Determinant of the degree of labour market dualism
     • When fixed contract are liberalised, firms react by substituting temporary for regular workers

3. Reforms to mitigate short-term costs

   • Notable is that this kind of reforms is implemented in downturn stages because it's easier to build a political consent
     • Evidence from Spain demonstrate that countries coupling reforms relaxing employment protection with others making the collective bargaining more flexible can offset job losses
       • The practice of grandfathering also dampen the effect of reforms given that as the time pass the workers with the old entitlements are leaving the labour force
     • Lack of incentives for both employers and workers can make even early intervention ineffective
       • Important to design correct incentives
         • e.g. Employers sanctioned for non-compliance to some standards
         • e.g. extension of job-search obligations to workers
         • Effective functioning and implementing is based on resources and infrastructure available