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ICC Advance Access originally published online on January 26, 2006
Industrial and Corporate Change 2006 15(1):101-122; doi:10.1093/icc/dtj004
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© The Author 2006. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved.

Labor and product market reforms: questioning policy complementarity

Bruno Amable

Donatella Gatti

Correspondence: Bruno Amable, University of Paris X-Nanterre, PsE & CEPREMAP, 48 boulevard Jourdan, 75014 Paris, France. e-mail: bruno.amable{at}ens.fr

Correspondence: Donatella Gatti, University of Lyon 2, PSE, IZA & CEPREMAP, 142 rue de Chevaleret, 75013 Paris, France. e-mail: donatella.gatti{at}cepremap.cnrs.fr

This article proposes a dynamic efficiency wages model with imperfect competition on labor and product markets. In this framework, job insecurity generates a perverse effect on workers incentives, which shifts up the real wages schedule and may yield employment losses. Product market regulation and redundancy payments contribute to reducing labor turnover, thus easing the workers incentive constraint. Consequently, and against conventional wisdom, regulations may have a positive impact on employment, and a substitution effect may emerge across deregulation policies. Moreover, in some cases, a complementarity arises between regulations in product and labor markets, both interacting to ensure more stable labor relations.


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