Market Regulation, Labor Policies and the Wage-Productivity Gap

Abstract

This paper proposes an empirical analysis about the influence of some institutional factors (taxation, active and passive labor market policies, labor and goods market regulation, and unions' participation) on the component of the wage growth not explained by the productivity growth (WP gap, thereafter). We consider a 14 OECD countries Panel Data over the period 1983-2003, using four different estimations: fixed effects vector decomposition (FEVD), fixed effects (FE), random effects (RE), and feasible general least square (FGLS). Results for all estimations show that the WP gap is affected by tax wedge, active labor market policies, employment protection for temporary workers and union density, while product market regulation and passive labor market policies do not play a significant role.