Structural Reforms and Labor Reallocation: A Cross-Country Analysis

By Khalid ElFayoumi, Anta Ndoye, Sanaa Nadeem, Gregory Auclair

March 19, 2018

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Khalid ElFayoumi, Anta Ndoye, Sanaa Nadeem, and Gregory Auclair. Structural Reforms and Labor Reallocation: A Cross-Country Analysis, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Institutional and market frictions impose costs on the reallocation of labor from low to high productivity sectors, leading to suboptimal allocations and a loss in aggregate labor productivity. Using cross-country sector-level data, we use a dynamic panel error correction model to compute the speed of sectoral labor adjustment, as well as the contribution of structural reforms in governance, labor and product markets, trade and openness, and the financial sector to lowering the costs of labor reallocation. We find that, on average, sectoral employment shares converge towards equilibrium allocations, closing about 13.7 percent of labor productivity gaps each year; this speed of labor adjustment varies across sectors and income groups. On structural reforms, we find a significant association between more efficient labor reallocation and financial market liberalization, less bureaucracy, strong judicial and regulatory environment, trade liberalization, better education and more flexible labor and product markets.

Subject: Labor, Labor productivity, Macrostructural analysis, Production, Productivity, Structural reforms, Total factor productivity

Keywords: Eastern Europe, Global, Growth, Labor productivity, Labor productivity calculation, Middle East, North Africa, Product market, Product market reform, Productivity, Productivity gap, Productivity growth, Productivity sector, Sector TFP, Structural change, Structural reforms, Sub-Saharan Africa, TFP productivity, Total factor productivity, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/064
Stock No:

WPIEA2018064
ISBN:

9781484346983
ISSN:

1018-5941

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