Maarten Dossche, Andrea Giovanni Gazzani, Vivien Lewis, 30 August 2021

Labour productivity is more procyclical in OECD countries with lower employment volatility. To capture this new stylised fact, this column proposes a business cycle model with employment adjustment costs, variable hours, and labour effort. In the model with variable effort, it shows that greater labour market frictions are associated with procyclical labour productivity as well as stable employment. In contrast, the constant-effort model fails to replicate the observed cross-country pattern in the data. Labour market deregulation has a greater effect on labour productivity cyclicality and employment volatility when effort can vary. 

Gilbert Cette, Jimmy Lopez, Jacques Mairesse, 13 September 2018

Although many product and labour market reforms have been implemented in OECD countries during the last two decades, further reforms are still frequently promoted to increase competitiveness, restore economic growth, and improve workers’ purchasing power. This column uses new cross-country and cross-industry measures to explore how deregulation affects these markets. The results confirm that product market deregulation may reduce rent creation, but that labour market deregulation may have two opposing effects on rent sharing – a negative impact on wages and a positive impact on hours worked.

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