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

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.The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396