Short-term labour market effects of structural reforms

There is broad consensus that well-designed structural reforms of product and labour markets can have positive effects in the long run. And yet, structural reforms often involve significant reallocation of resources which might entail costly adjustments, especially in the labour market. This chapter exploits long time series of industry-level data in a group of OECD countries to analyse the short-term labour market effects of reforms lowering barriers to entry and the cost of dismissal. It finds that both policies induce non-negligible transitory employment losses on average, a result that is confirmed by complementary evidence from case studies of three recently implemented EPL reforms. The strength of these effects varies depending on the underlying industry and labour market structure, and on cyclical conditions. The chapter also discusses policy options that could help attenuate these costs, and whose applicability and aptness may vary across countries.

OECD Employment Outlook 2016

Short-term labour market effects of structural reforms

Pain before the gain?