PhD Lunch Seminars Amsterdam

Gabriele Ciminelli (University of Amsterdam)
Tuesday, 7 November 2017

Widespread deregulation of labor and product markets is one plausible, yet little studied, driver of the decline in labor shares that took place across most advanced economies during the 1990s and the 2000s. This paper assesses the impact of job protection deregulation in a sample of 26 advanced economies over the 1970-2010 period, using a newly constructed dataset of major reforms to employment protection legislation (EPL) for regular contracts,. We apply the local projection method to estimate the dynamic response of the labor share to our reform events at both the country and the country-industry level. For the latter, we employ a differences-in-differences identification strategy using two identifying assumptions derived from theory—namely that job protection deregulation should have larger negative effects in industries characterized by (i) a higher “natural” propensity to adjust the workforce, and (ii) a lower elasticity of substitution between capital and labor. We find a statistically significant, economically large and econometrically robust negative effect of deregulation on the labor share. Our findings call for greater emphasis on the role of deregulation, alongside those of technology and globalization, in the ongoing debate on the drivers of the decline in labor shares.