PMR reforms can have important spillovers across firms and sectors. Anti-competitive PMR in intermediate sectors, such as network and professional services, and PMR differentiated based on firms’ size or ownership structure have been found to be particularly distortionary. However, understanding which types of workers and firms are most affected by reforms can help design appropriate compensation measures and reduce political resistance to deregulation. Third, PMR reforms can incur significant short-term costs, including temporary increases in unemployment as firms may cease operations along the transition toward a new market equilibrium. This regularity may help explain some of the political resistance to product market deregulation. Thus, for a successful policy implementation, it may be helpful to develop a better understanding of which types of workers and firms are most affected by specific PMR reforms so that appropriate compensation measures can be designed.

**Highlights of the LMR review:** The existing evidence suggests a positive economic effect of more binding, i.e. worker-friendly, LMR. First, the increases in the minimum wage increase the wages of workers at the bottom of the wage distribution with only a small average disemployment effect in the short term, and a disputed impact on employment in the long run. The direction of the employment effect following minimum wage hikes varies with the structure and extent of employer power in the labor market. Monopsonistic industries see employment rises, while competitive industries see declines. Meanwhile, the margin of adjustment depends on exposure to international competition in the product market. Industries more exposed to international competition adjust mainly through employment, while less exposed industries adjust through prices. The minimum wage is recognized as a valuable tool for reducing income inequality and has historically contributed to decreasing income inequality between racial and ethnic groups. In LMICs, it also raises wages in the informal sector, although its impact on informal employment remains inconclusive. Moreover, the minimum wage stimulates aggregate consumption, especially of durable goods, by alleviating household credit constraints. Its effect on productivity appears positive, while its impact on social cohesion is uncertain, with lower crime rates among teenagers but mixed effects on poverty.

Second, the evidence on the effects of employment protection legislation shows that binding employment protection legislation increases job security. More binding regulation, however, has a negative effect on wages and a mixed effect on productivity and unemployment. On one hand, more stringent job protection increases the stock of human capital, contributing positively to productivity, as it offers incentives to firms to invest in training and encourages the accumulation of firm-specific knowledge among protected workers. On the other hand, more stringent job protection slows down labor reallocation, potentially hindering productivity by slowing down the movement of workers from less to more productive activities. In line with this argument, evidence also shows that under specific circumstances, making job protection flexible—for example, by using discretionary rules to retain workers or temporary contracts that provide workers with no job protection—may increase productivity. Introducing flexibility via temporary contracts while maintaining more stringent job protection for permanent workers, however, can result in dual labor markets if temporary contracts are used extensively. Dual labor markets are associated with lower productivity levels. Furthermore, in the context of dual labor markets, more stringent job protection is associated with higher wage inequality, as in practice it only affects a few (permanent) workers.

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