Before It Gets Better: The Short-Term Employment Costs of Regulatory Reforms

Abstract

The article exploits long time series of industry-level data in a group of OECD countries to analyze the short-term labor market effects of reforms that lower barriers to entry and dismissal costs. Estimates show that both policies induce non-negligible transitory employment losses. The strength of these effects varies depending on the underlying industry and labor market structure, and on cyclical conditions: The employment cost of deregulation is higher in economic downturns and negligible in good times. These findings prove robust to a set of specification and sensitivity checks and are confirmed after standard reverse causality and falsification tests.