The Dynamics of the Regulation of Labor in Developing and Developed Countries Since 1960
Abstract: Recent research emphasizes the origin of the legal system as a main explanation for the cross-country variation in employment protection legislation. Yet the supporting evidence is largely confined to levels of regulation and is almost exclusively based on international cross-section data for the post-1995 period. This paper introduces new data measuring the rigidity of employment protection legislation (LAMRIG) for an unbalanced panel of more than 140 countries since 1960 in 5-year intervals. Although the importance of legal origins in explaining the variation of the level of labor regulation across countries is replicated using LAMRIG, its explanatory power is much weaker in explaining changes in LAMRIG (i.e., labor market reform) over the 1960-2004 period. In its stead, the roles of the level of development and of other reforms become stronger. Our results show that per capita GDP levels and unemployment rates foster labor market reform while trade liberalization tends to hinder it.