This one should make the PM happy. A new Reserve Bank discussion paper shows that employment protection legislation lowers productivity growth.
Productivity Growth: The Effect of Market Regulations
Christopher Kent, John Simon
This paper explores the effects of product and labour market regulation on growth in total factor productivity (TFP) using panel data from 1974â€“2003 for 18 OECD countries. Our regressions are specified so that labour and product market regulations can affect productivity both individually and in combination. While noting that the results are sensitive to the measure of labour market regulation used, we find some support for the hypothesis that lower initial levels of regulation are associated with higher TFP growth over subsequent years, and that labour and product market deregulation have more of an effect in combination. It also appears that product market deregulation has a larger positive effect on productivity growth the further a country is from the technological frontier.
I’m a little troubled by their chosen indicator of labour market regulation (days lost to strikes), but the finding accords with much of the previous literature, including this oft-cited paper.
Of course, the negative relationship between productivity growth and regulation doesn’t mean that market regulations are bad – just that they represent a tradeoff between equity and efficiency.