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It may get worse before it gets better: The short-term employment consequences of structural reforms

Andrea Bassanini, Federico Cingano, (2018), «It may get worse before it gets better: The short-term employment consequences of structural reforms», VoxEU, 16 Απριλίου

Structural reforms feature prominently in the political agenda of many countries in a bid to promote and sustain economic growth. And yet, the pace of reforms slowed down during the recent recession and subsequent sluggish recovery, both in developed and emerging economies (OECD 2016, IMF 2016a). These trends have partly been traced to increasing concerns that, despite their perceived long-term benefits, structural reforms may entail costly transitory adjustments whose burden becomes especially worrying in periods of persistent economic and employment slack. But are such concerns grounded? In theory, product or labour market reforms may induce temporary losses in output or employment in the presence of market frictions (Gerali et al. 2015, Cacciatore and Fiori 2016). In practice, however, little is known about the empirical relevance of such losses, or, perhaps more importantly, whether appropriately designed policies could help attenuate them (see Boeri et al. 2015, IMF 2016b). In a recent contribution (Bassanini and Cingano 2018), we attempted to make progress in answering these questions, focusing on the short-term responses of employment to reforms removing barriers to entry in product markets (PMR reforms) and lowering the cost of dismissals (EPL reforms).

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