Structural labour market reforms, GDP growth and the functional distribution of income

in Structural Change and Economic Dynamics
advance access online: October 20, 2017

by Emiliano Brancaccio (University of Sannio), Nadia Garbellini (University of Bergamo), Raffaele Giammetti (Marche Polytechnic University)

The view that “structural reforms” designed to deregulate the labour market would be able to increase employment and income is questioned by controversial empirical results, while the likelihood that these reforms accentuate inequalities seems to be supported by recent evidence. The wide literature on this issue, however, lacks studies on the specific implications of “structural labour-market reforms” on growth and functional distribution of income. The purpose of this study is to fill this gap by proposing two new empirical analyses aimed at verifying the existence of statistical relationships between changes in the Employment protection legislation index (EPL) on one side and variations of real GDP growth and wage share on the other side. Results indicate that EPL reductions have no significant links with real GDP growth whereas they are significantly correlated with wage share reductions. These results contradict some features of the neoclassical theories of growth and distribution.

JEL classifications: B5, C1, E25.

Keywords: Structural reform, Labour market flexibility, EPL, GDP growth, Functional income distribution, inequality, Neoclassical theory, Alternative approaches to growth and distribution.


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