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External shocks and labor market reforms in autocracies and democracies: evidence from oil price windfalls

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Listed:
  • Markus Brueckner
  • Gabriele Ciminelli
  • Norman Loayza

Abstract

We examine the relationship between oil price windfalls and labor market regulation empirically through panel regressions in a sample of 83 countries spanning the 1970-2014 period. We find that oil price windfall gains lead to a deregulation of the labor market in autocracies but have no effects in democracies. Windfall losses instead cause a substantial deregulation in democracies but have no effects in autocracies. We then consider possible transmission channels. Democracies appear to redistribute the rents stemming from a positive windfall by increasing government expenditures. Rent extraction and economic efficiency considerations are both plausible drivers of the deregulation following windfall gains in autocracies, as expenditures are not raised, while GDP and employment gradually increase after positive windfalls. The deregulation following windfall losses in democracies is instead consistent with the crisis-induced-reform hypothesis, as the windfall loss induce a sharp deterioration of the current account and budget balances.

Suggested Citation

  • Markus Brueckner & Gabriele Ciminelli & Norman Loayza, 2024. "External shocks and labor market reforms in autocracies and democracies: evidence from oil price windfalls," ANU Working Papers in Economics and Econometrics 2024-696, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2024-696
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    More about this item

    Keywords

    oil price; windfalls; labor market; deregulation; political institutions;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P11 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Planning, Coordination, and Reform
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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