The Effects of Wage-Labor Regulations on Economic Performances: Much More Damaging than Expected

39 Pages Posted: 23 Jan 2011

See all articles by Pak-Hung Mo

Pak-Hung Mo

Hong Kong Baptist University (HKBU)

Date Written: January 1, 2011

Abstract

Despite decades of experience and research, the effects of wage-labor regulations on long-run economic performance have rarely been studied since Stigler's (1946) classic exposition about the shortcomings of minimum wage legislation. In this study, we estimate and report the magnitude and transmission channels by which wage-labor (WL) regulations affect productivity and GDP growth. Our results suggest that countries with WL regulations typically have a growth rate of about 20 to 30 percent lower than the sample mean. In the 'steady state' where the marginal effect of the regulation years equals zero, a country will have a growth rate about 30 to 38 percent lower than the average. They exemplify how a bad institution, the rules of the game governing economic interactions, ultimately determines economic performances, and the rise or decline of nations over time.

Keywords: economic growth, minimum wage, private investment, government size, government

JEL Classification: O12, O15, O38, O43, J58, I38, E02, D78, C52

Suggested Citation

Mo, Pak-Hung, The Effects of Wage-Labor Regulations on Economic Performances: Much More Damaging than Expected (January 1, 2011). Available at SSRN: https://ssrn.com/abstract=1744682 or http://dx.doi.org/10.2139/ssrn.1744682

Pak-Hung Mo (Contact Author)

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

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