Structural Reform Packages, Sequencing, and the Informal Economy

May 26, 2017

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Zsuzsa Munkacsi, and Magnus Saxegaard. Structural Reform Packages, Sequencing, and the Informal Economy, (USA: International Monetary Fund, 2017) 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

This paper explores the macroeconomic impacts of labor and product market deregulation using a small open-economy model with formal and informal markets. We examine both the long-run effects and the transition towards the post-reform equilibrium, while our main focus are reform packages and sequencing. The unofficial sector is a major determinant of the sign, and, in particular, the magnitude of responses. South Africa, an emerging country, is considered when Bayesian estimating the model. Regarding the long run, both labor and product market reforms considerably increase output, although labor market reforms are more successful in decreasing unemployment. Nevertheless, there are short-term costs, for example, a decrease in household consumption, net exports or output, or a decrease in competition. Combining reforms, especially with product market deregulation, are good at reducing short-term costs. Finally, concerning the speed of adjustment, it is usually better to start with a labor market reform.

Subject: Commodity markets, Employment, Financial markets, Labor, Labor market reforms, Labor markets, Unemployment, Wages

Keywords: Africa, Commodity markets, Employment, Endogenous firm entry, Exit rate, Export price elasticity, Firm exit, Global, Hiring cost, Hiring costs, Informal employment, Labor market, Labor market deregulation, Labor market reforms, Physical capital, Product market, Product market deregulation, Product market reform, Reform packages, Sequencing, Shadow economy, Small-open economy, Structural reforms, Unemployment, Value function, Wages, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/125
Stock No:

WPIEA2017125
ISBN:

9781484302101
ISSN:

1018-5941

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