Reforms to product markets in order to increase economic flexibility and improve economic performance are high on the policy agenda across OECD countries. Work in this area funded by the European Commission has examined the impact of product market reforms on macroeconomic performance across countries, measured in terms of employment, productivity growth and R&D spending.
Recently the attention of policy makers and academics has focused on the interactions between product market reforms and regulations in the labour market. Research in this area examines whether the impact of product market reforms on employment rates across OECD countries depends on characteristics of the labour market such as union bargaining coverage and employment protection legislation. An extension to the UK will look across industries at the effects on employment, wages and productivity of product market interventions such as privatisations, Competition Commission investigations and the European Single Market Programme.
Product market interventions such as those listed above affect the likelihood of new entry into an industry. Other work in this area has looked at the relationship between entry and total factor productivity (TFP) growth of incumbent firms. While the research finds a positive relationship, there is substantial variation. For industries near the technological frontier TFP growth increases sharply with the threat of new entry, but for industries behind the frontier it declines.
Further work is looking at empirical measures of the extent of product market competition.
