Product market reforms that increase competition can boost workers' chances of finding jobs, especially for women and younger workers. However, such reforms may also increase job turnover for low-income and low-skilled workers. The effects of flexibility-enhancing policies depend on other labour market policies - reforms are more likely to increase job opportunities where active labour market policies and wage coordination are stronger. Broad reforms across multiple sectors combined with support for vulnerable workers tend to deliver more inclusive growth.

1. Berlin, 30 November 2016
Enhancing Economic Flexibility:
What Is in It for Workers?
www.oecd.org/eco/enhancing-economic-flexibility-what-is-in-it-for-workers.htm
ECOSCOPE blog: oecdecoscope.wordpress.com

2. Key messages
2
Enhancing economic flexibility has different effects on different people
• Overall, reforms that make product markets more competitive enhance job-finding chances
• This benefit is concentrated among women and younger workers
• Low-income and low-skilled workers experience higher labour-market turnover as a result of
such reforms
• Regulatory reform reduces relative wage premia for workers in the sectors that undergo reform
The policy framework shapes the effects of flexibility-enhancing policies on
workers
• Product market reforms generate higher job-finding benefits and lower job-loss costs where
labour-market policy settings are more flexible
• Activation programmes enhance the job-finding benefits of employment protection reforms
Broad reform strategies across sectors and policy areas including active
support for vulnerable workers serve inclusive growth best

3. Structure
3
1. Motivation and approach
2. Effects across all workers
3. Influence of other policies
4. Effects on workers in reformed sectors
5. Policy implications

4. 1. MOTIVATION AND
APPROACH
4

5. Motivation: How to make pro-growth
reforms more inclusive?
5
Key issue: many people gain, but some may lose a lot, at least temporarily
• Loss aversion magnifies perceived costs relative to gains
• Those who lose from a reform are more likely to organise against it than those who gain
Scope: reforms that make labour or product market rules more flexible
• Reforms that reduce employment protection legislation for workers with regular (EPL-R)
contracts or (EPL-T) temporary
• Reforms that instil greater competition in:
• Energy, transport and communications regulation (ETCR)
• Product market regulation (PMR)
Question: what are the effects of greater economic flexibility on workers?
• The results document reform effects on the
• Risk of becoming jobless (unemployed or moving out of the labour force)
• Chances of finding a job when unemployed
• Wages of workers in reformed industries relative to other industries
Conclusion: policy packages can deliver more inclusive benefits

6. Approach: micro analysis can show what
flexibility policies mean for individuals
6
Micro-level data
• Six national surveys (AUS, DEU, KOR, CHE, GBR, USA)
• European Community Household Panel (ECHP)
• EU Survey of Income and Living Conditions (EU-SILC)
• EU Labour Force Surveys
• EU Structure of Earnings Survey
Micro-level regressions
• Effects on workers in all sectors: micro-panel regressions on 26 countries
with individual controls, country policy indicators and interactions over
1994-2012
• Effects on workers in reformed sectors: micro-level regressions including
sector regulation indicators and individual controls using three multi-
country datasets

7. 2. EFFECTS ON WORKERS
IN ALL SECTORS
7

8. Reforms enhancing product market competition boost
workers’ job-finding chances
8
Source: Cournède, Denk and Garda (2016).
Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD
indicators of employment protection legislation for regular (EPL-R) or temporary (EPL-T) contracts , product
market regulation (PMR) or energy, transport and communication regulation (ETCR).
0
5
10
15
20
25
30
35
40
EPL-regular EPL-temporary PMR ETCR
Country average After a typical reformPer cent
Job protection Product market competition
Average transition probabilities into employment among jobless working-age persons

9. Flexibility-enhancing reforms have no
systematic effects on job-loss risk …
9
0
2
4
6
8
10
12
EPL-regular EPL-temporary PMR ETCR
Country average After a typical reform
9
Source: Cournède, Denk and Garda (2016).
Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD
indicators of employment protection legislation for regular (EPL-R) or temporary (EPL-T) contracts , product
market regulation (PMR) or energy, transport and communication regulation (ETCR).
Per cent
Job protection Product market competition
Average transition probabilities out of employment

10. …but product market reforms imply more frequent
transitions out of a job for low-income workers
1010
Source: Cournède, Denk and Garda (2016).
Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD
indicator of regulation in product markets (PMR, left panel) or energy, transport and communication (ETCR,
right panel). Hatched areas indicate negative effects.
Average transition probabilities out of employment, percentages
0
5
10
15
20
25
30
Bottom
quartile
Second
quartile
Third
quartile
Top
quartile
0
5
10
15
20
25
30
Bottom
quartile
Second
quartile
Third
quartile
Top
quartile
Energy, transport and
communication regulation
Overall product market regulation

11. Product market reforms generally boost
women’s job-finding chances but not men’s
1111
Source: Cournède, Denk and Garda (2016).
Average transition probabilities into employment, percentages
Overall product market regulation
0
5
10
15
20
25
30
35
40
Men Women
0
5
10
15
20
25
30
35
40
Men Women
Energy, transport and communication regulation
Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD
indicator of regulation in product markets (PMR, left panel) or energy, transport and communication (ETCR,
right panel). Hatched areas indicate negative effects.

12. Product market reforms increase job-
finding chances mostly for the young
1212
Source: Cournède, Denk and Garda (2016).
Note: A typical reform is defined as the average 5-year policy change (measured by the OECD product
market regulation PMR indicator) over reform episodes.
Estimated percentage point change in job-finding probabilities after a typical product market reform
-1
0
1
2
3
4
5
6
25 30 35 40 45 50 55
Age

13. 3. INFLUENCE OF OTHER
POLICIES
13

14. Easing job protection boosts hiring in
countries with strong activation policies
1414
Source: Cournède, Denk and Garda (2016).
Note: A typical reform is defined as the average 5-year policy change (measured by the indicator of
employment protection legislation for regular contracts EPL-R) over reform episodes. ALMP stands for
active labour market policies.
Estimated percentage point change in job-finding probabilities among jobless working-age people after
a typical reform of job protection for regular contracts
-2
-1
0
1
2
3
4
5
6
7
0.2 0.4 0.5 0.7 0.8 1.0 1.2 1.3 1.5 1.6 1.8 1.9 2.1 2.3 2.4 2.6 2.7 2.9 3.1
Ratio of ALMP spending to cross-country 2012 average
DNK(2012)
EST (2012)
SWE (2012)
HUN (2012)

15. Easing job protection raises job-loss risk in
countries with medium-level wage coordination
1515
Source: Cournède, Denk and Garda (2016).
Percentage points
Estimated changes in transition probabilities out of employment after a typical reform of job
protection for regular contracts
-2
-1
0
1
2
Low coordination Medium
coordination
High coordination
Note: A typical reform is defined as the average 5-year policy change (measured by the indicator of
employment protection legislation for regular contracts EPL-R) over reform episodes.

16. Pro-competition reforms typically reduce job-
loss risk where job protection is flexible
1616
Source: Cournède, Denk and Garda (2016).
Note: A typical reform is defined as the average 5-year policy change (measured by the energy, transport
and communication regulation ETCR indicator) over reform episodes.
-4
-3
-2
-1
0
1
2
3
4
1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
EPL-R
Percentage points
GBR (2013)
PRT (2013) PRT (1994)
Estimated changes in transition probabilities out of employment after a typical regulatory reform of
network industries

17. 4. EFFECTS ON WORKERS
IN REFORMED INDUSTRIES
17

18. Network industry reform has reduced
estimated wage premia in these sectors
18
Source: Denk (2016).
Note: This chart shows the average tightness of network industry regulation in 21 OECD countries and the
associated estimated wage premium for workers in this industry.
0
2
4
6
8
10
12
14
16
18
20
0
2
4
6
8
10
12
14
16
18
20
1985 1990 1995 2000 2005 2010
Wage premium for network industry workers
Network industry regulation index
Per cent
Highly
regulated
Lightly
regulated
Index points

19. Network industry reform has been
accompanied by higher worker exit and entry
19
Source: Denk (2016).
Note: This figure shows the average annual rates of exit and entry out of and into work in network sectors,
from and to unemployment or economic inactivity (blue bars), the effect of a typical reform (green
rectangles) and confidence intervals (black segments). A typical network industry reform is defined as the
mean five-year change in the indicator across countries where it declined.
0
5
10
15
20
25
Exit rate from network industries Entry rate into network industries
After a typical reform Country average
Annual rates of exit and entry out of and into work in network sectors
Per cent

20. 5. POLICY PACKAGES FOR
INCLUSIVE REFORMS
20

21. Reform broadly rather than narrowly
21
Recognise that narrow reforms can imply lower relative wages in reformed sectors
Narrow reform coupled with direct compensation risks being short-sighted
•Yes, there are instances where direct compensation facilitated policy changes
•But this tactic
•Raises issues of fairness for workers employed in already competitive sectors who find themselves
funding former beneficiaries of the rents that anti-competitive regulation generated
•Risks compromising future reform, because the anticipation of compensation produces the wrong
incentives in still unreformed sectors
Broad reform is fairer and more economically efficient
•Across-the-board reform of regulated sectors
•Ensures that workers experiencing reductions of their wage premia gain purchasing power from the
price reductions that reform generates in other sectors: it is fairer
•Avoids the need to fund compensation and the associated distortions: it is more efficient

22. Design strategies that enhance job gains, limit
job losses and help the most vulnerable
22
Reform is more inclusive when co-ordinated rather than
piecemeal
• Product market reforms deliver larger job-finding gains while generating
smaller increases in job-loss risks where labour market settings are more
flexible.
Active labour market policies facilitate inclusive reform
• Reforms of employment protection typically enhance jobless people’s chances
of finding jobs more in countries that invest more in active labour market
policies
• The quality of activation programmes matters
• The uneven effects of reforms underline the importance of ensuring that active
labour market policies effectively help workers who are less qualified or have
low income

23. An illustration: activation policies can enhance
the benefits of labour-market reform
2323
Source: Cournède, Denk, Garda and Hoeller (2016).
Note: A typical reform of employment protection legislation for regular contracts (EPL-R) reduces the EPL-R
indicator by 0.30. Spending on active labour market programmes (ALMP) per person unemployed takes its
highest 2012 value, relative to GDP per capita, in Denmark.
0
10
20
30
40
50
60
70
SWE
ISL
FIN
PRT
CHE
EST
DNK
ESP
NOR
AUT
NLD
HUN
GBR
AUS
IRL
CZE
SVK
GRC
POL
FRA
DEU
ITA
BEL
SVN
LUX
Transition probability jobless-employed 2005-12
Typical EPL reform with ALMP at current settings
Typical EPL reform with highest observed ALMP
Per cent

24. 24
Underlying data and analysis:
Cournède, B., O. Denk, P. Garda and P. Hoeller (2016): “Enhancing Economic
Flexibility: What is in it for Workers?”, OECD Economic Policy Papers, No. 19,
OECD Publishing.
Cournède, B., O. Denk and P. Garda (2016), “Effects of Flexibility-Enhancing
Reforms on Employment Transitions”, OECD Economics Department Working
Papers, No. 1348, OECD Publishing.
Denk, O. (2016), “How Do Product Market Regulations Affect Workers? Evidence
from the Network Industries”, OECD Economics Department Working Papers, No.
1349, OECD Publishing.
Garda, P. (2016), “The Ins and Outs of Employment in 25 OECD Countries”, OECD
Economics Department Working Papers, No. 1350, OECD Publishing.
Disclaimers:
This document should not be reported as representing the official views of the OECD or its member countries. The opinions expressed and
arguments employed are those of the authors listed on this page.
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of
international frontiers and boundaries and to the name of any territory, city or area.
Latvia was not an OECD member at the time of preparation of this publication. Accordingly, Latvia does not appear in the list of OECD
members and is not included in any OECD aggregates.