Reforming Labor and Product Markets

This paper evaluates European structural reforms over the last 20 years, in light of economic theory predictions about interactions between labor and product market reforms. Reforms in labor markets occur at higher frequencies than in product market, which are, however, more coherent. These asymmetries can be explained by the nature of political obstacles to reforms in the two domains. Labor market reforms can exploit institutional trade-offs; notably, reforms can trade labor market flexibility with state-provided unemployment insurance and can be applied only to new entrants in the market without affecting the set of regulations applied to existing workers. These two-tier strategies are infeasible in product markets, since incumbent firms can easily drive away new entrants. In product markets, however, it is possible to shift responsibilities to supranational authorities, resisting pressures of national lobbies.Economic reforms;Labor markets;Manufacturing sector;Structural adjustment;labor market, employment, unemployment, employment protection, labor market reforms, labor demand, unemployment insurance, unemployment benefits, labour, jobs, labor market institutions, labor market deregulation, labor force, employment benefits, unemployed, bargaining power, labor supply, employment protection legislation, unemployment rate, labour market, labor market reform, labor market flexibility, unemployment levels, equilibrium unemployment, labor market indicators, unemployment benefit systems, labor market participation, unemployment benefit, labor force participation, collective bargaining, job loss, employment levels, job search, labor market liberalization, labour supply, unemployment rates, temporary unemployment insurance, youth unemployment rates, labor turnover, training component, public employment, labour markets, effects on employment, labor productivity, rigid labor market, unemployment assistance, unemployed workers, labor demand elasticity, employment outcomes, job security, job protection, employment record, job security provisions, employment level, labour market institutions, temporary jobs, labour market reform, unemployment insurance programs, information on labor market, job-seekers, labor force participation rates, employment relationship, employment experience, cost of employment, unemployed receiving, temporary unemployment, flexible ? labor market, incidence of unemployment, high youth unemployment, unemployment duration, labor market regulation, employment outlook, youth unemployment