The Effects of Wage-Labor Regulations on Economic Performances: Much More Damaging than Expected
39 Pages Posted: 23 Jan 2011
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: Suggested Citation