Structural reforms are expected to lift growth and employment, but their effects are surprisingly difficult to pin down empirically. One reason is their potential endogeneity to the economic environment in which they are conducted. For example, the impact of a reform implemented shortly before a cyclical upswing is difficult to distinguish from the recovery itself. Similarly, macroeconomic policies conducted along a structural reform could affect the estimated impact. Exploring various options, this paper develops robust estimates of the impact of labor and product market reforms by using local projection techniques while controlling for endogeneity of reforms and other biases. The results suggest that labor and product market reforms have a lagged but positive impact on employment creation, and the positive effect remains even after controlling for the endogeneity of the decision to reform. Supportive macroeconomic policies are found to increase the effect of labor and product market reforms, consistent with the view that some structural reforms are best initiated in conjunction with supportive fiscal or monetary policy.

The labor market is undoubtedly the closest and most intimate aspect of the economy that the individuals face. The type of employment has also evolved over time alongside the labor market. While much study has been focused on the labor market, not enough light has been shed on self-employment, which is unique in that it is a form of employment at the borderline of workers and firms. Relating the motivation for starting one's own business to the possibility of finding wage-paying jobs is even rarer, as much of previous literature see self-employment from the perspective of credit constraints or avoiding costly labor and tax regulations. As the share of self-employment is non-negligible (which is especially true in developing, small open economies), a proper understanding of self-employment is crucial in successfully carrying out structural reforms as well. With this agenda in mind, this dissertation seeks to understand two main issues. First is exploring how individuals' decisions towards choosing into self-employment can be tied to the state of the labor market (i.e. the probability of finding wage-paying work). This additional source of employment eventually affects the composition of the labor market and thus the business cycle dynamics. The second topic of the dissertation is studying the consequences of such self-employment on the macroeconomic efficiency and the outcomes of structural reforms on the product and labor markets. The first chapter focuses on the consequences of different decisions regarding the international financial market integration and exchange rate policy in a small open economy, Korea. The chapter is targeted towards a deeper understanding of a combination of policies under two important ingredients in a Dynamic Stochastic General Equilibrium (DSGE) model: producer entry into domestic and export markets and labor market frictions. Results show that under flexible exchange rates, access to international financial markets increases the volatility of both business creation and the number of exporting plants, with the effects on employment volatility being more modest. The exchange rate peg can have unfavorable consequences for the effects of terms of trade appreciation, and more financial integration is not necessarily beneficial under a peg. The combination of a floating exchange rate and internationally complete markets would be the best scenario for Korea among those the chapter focuses on. The second chapter introduces workers' endogenous transition in and out of self-employment in the traditional Diamond-Mortensen-Pissarides (DMP) framework, while keeping the crucial ingredients in a closed economy DSGE framework as explored in \autoref{chp:fmkorea}. Under such settings, labor market composition becomes more volatile, leading to greater fluctuations and higher welfare costs from business cycles. A comparison with a centrally planned economy shows that self-employment becomes an additional source of inefficiency in the economy. The lack of job creation by the self-employed implies reforms being less effective when targeted towards them. The third chapter brings together the first two chapters by allowing self-employment in a small open economy, calibrated for Korea. Specifically, the hiring firms produce tradable goods and engage in exporting, while the self-employed produce nontradable goods and only serve the domestic market. The model displays a much higher rate of self-employment (around 36% of employment) compared to the closed economy calibrated for the U.S. in the second chapter. It also shows the real exchange rate appreciating and terms of trade depreciating under financial autarky after a productivity shock, where the size of the fluctuations depends on the firm creation in both tradable and nontradable sectors. Allowing international borrowing leads to more consumption smoothing but relatively less entry in both hiring and self-employed firms, with unemployment becoming less volatile and terms of trade initially appreciating.

This paper examines the role of the labor market in the transmission process of adjustment policies in developing countries. It begins by reviewing the recent evidence regarding the functioning of these markets. It then studies the implications of wage inertia, nominal contracts, labor market segmentation, and impediments to labor mobility for stabilization policies. The effect of labor market reforms on economic flexibility and the channels through which labor market imperfections alter the effects of structural adjustment measures are discussed next. The last part of the paper identifies a variety of issues that may require further investigation, such as the link between changes in relative wages and the distributional effects of adjustment policies.

This paper tests uncovered interest parity (UIP) using interest rates on longer maturity bonds for the Group of Seven countries. These long-horizon regressions yield much more support for UIP—all of the coefficients on interest differentials are of the correct sign, and almost all are closer to the UIP value of unity than to zero. The paper also analyzes the decision by a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact.

This report evaluates the comprehensive labour market reforms undertaken in Portugal in 2011-15. It reviews reforms in employment protection legislation, unemployment benefits, activation, collective bargaining, minimum wages and working time, and assesses the available evidence on their impact.

Law and Employment analyzes the effects of regulation and deregulation on Latin American labor markets and presents empirically grounded studies of the costs of regulation. Numerous labor regulations that were introduced or reformed in Latin America in the past thirty years have had important economic consequences. Nobel Prize-winning economist James J. Heckman and Carmen Pagés document the behavior of firms attempting to stay in business and be competitive while facing the high costs of complying with these labor laws. They challenge the prevailing view that labor market regulations affect only the distribution of labor incomes and have little or no impact on efficiency or the performance of labor markets. Using new micro-evidence, this volume shows that labor regulations reduce labor market turnover rates and flexibility, promote inequality, and discriminate against marginal workers. Along with in-depth studies of Colombia, Peru, Brazil, Argentina, Chile, Uruguay, Jamaica, and Trinidad, Law and Employment provides comparative analysis of Latin American economies against a range of European countries and the United States. The book breaks new ground by quantifying not only the cost of regulation in Latin America, the Caribbean, and in the OECD, but also the broader impact of this regulation.