countries, workers’ occupational mobility may also be lower, given limited geographic mobility and high-risk aversion caused by more stringent financial constraints.

Finally, Berger et al. (2023) study the impact of different regulatory approaches toward mergers. They simulate how two different antitrust guidelines in the US (stringent 1982 merger guidelines and more lenient 2010 ones) affect local labor markets. They find that workers are, on average, harmed under the enforcement of more lenient guidelines, even after accounting for the efficiency gains from the merger.

# **3.2.6 Synthesis of PMR Promoting Contestable Markets**

It is a well-established fact that achieving higher levels of competition in product markets helps increase aggregate productivity and improve the welfare of consumers. By ensuring that all resources are used where they are most productive, greater competition enhances the allocative efficiency of markets. This directly leads to a higher aggregate productive capacity. In addition, the constant challenge of new firms entering the market effectively incentivizes incumbents to adopt better production technologies and management practices, or leave the market, making way for other more productive competitors. This leads to accelerated aggregate technological progress. Both of these developments will, over time, lead to more and cheaper production, translating into increased levels of consumption for the country’s population, i.e., increases in GDP and consumer welfare.

In addition, there is evidence that contestable markets promote economies’ dynamism and make them more resilient to business cycle conditions and recessions (OECD, 2018b). Likewise, firms can cope better with adverse conditions when their operational and management structures are more flexible: they can take appropriate countermeasures faster and adjust them given the individual conditions in the firm. Overall, this increased economic resilience again translates into direct benefits for consumers and investors.

The literature reviewed in this section adds to this evidence by showing that the functioning of product markets also has direct implications on labor market outcomes, such as employment rates, wages, and job quality. In both in the empirical and theoretical literature, these aggregate economic outcomes are consistently associated with higher employment levels in the long run. There is considerably less empirical evidence on the effects of product market deregulation on wages. However, most of the papers that emphasize this dimension conclude that there is (at least) an increase in real wage levels, i.e., an increase in wages after taking the purchasing power of consumers into account. In some cases, the literature even explicitly finds increased nominal wages.

While more evidence from LMICs would be desirable, findings from high-income countries consistently show that deregulatory product market reforms can entail short-term costs. These occur in the form of increased unemployment and lower consumption in the short run. Also, as reforms initiate a transition toward a new equilibrium, some incumbent firms may cease operation. This necessarily hurts the associated entrepreneurs and employees and may help explain some of the political resistance against product market deregulation. Thus, for a successful policy implementation, it may be helpful to develop a better understanding of which types of workers and 26