Labor market regulations and income inequality: evidence for a panel of countries

Redistributive effects of labour regulations come from trade union membership, public employment and mandated benefits

This paper presents evidence on the impact of labour regulations on income inequality using two recently published databases on labour institutions and outcomes (Rama and Artecona, 2002; Botero, Djankov, La Porta, López-de-Silanes and Shleifer, 2003) and different cross-section and panel data analysis techniques for a sample of 121 countries over the 1970-2000 period.

The authors find:

de jure regulations do not improve income distribution
relative compliance with existing regulations improves income distribution
de facto regulations are weakly associated with improving income inequality.
From these findings, the authors conclude that regulations are endogenous and, more interestingly, that different regulations have quite distinct effects. In particular, they conclude that any redistributive effect of labour regulations may come from trade union membership, public employment and mandated benefits (proxied by maternity leave). [author]

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Labor market regulations and income inequality: evidence for a panel of countries