Abstract

This paper assesses the impact of job protection deregulation on the labor share in a sample of 26 advanced economies during the 1970-2013 period, using a newly constructed dataset of major reforms in this area. We employ a difference-indifferences identification strategy using two identifying assumptions grounded in theory – deregulation has larger effects in industries characterized by (i) a higher ‘natural’ propensity to regularly adjust the workforce, and (ii) a lower elasticity of substitution between capital and labor. We find significant negative effects of deregulation on the labor share, contributing to about a tenth of its observed decline in advanced economies.

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