Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25754 
Year of Publication: 
2006
Series/Report no.: 
CESifo Working Paper No. 1709
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This study explores the effects of labor and product market deregulation on employment growth. Our empirical results, based on an OECD country panel from 1990-2004, suggest that lower levels of product and labor market regulation foster employment growth, including through sizable interaction effects. Based on these findings, the paper develops a theoretical framework for evaluating deregulation strategies in the presence of reform costs. Optimal deregulation takes various forms depending on the deregulation costs and the strength of reform interactions. Compared to the first best, decentralized decision-making based on a partial market-by-market perspective can lead to excessive or insufficient regulation, depending on the design of the decision process. Securing the first best requires not only coordinating deregulation activities across sectors but also overcoming the partial perspective of decision makers.
JEL: 
L51
E24
J50
Document Type: 
Working Paper
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