Another takeaway from the literature is that product and labor market regulations often have different short- and long-run effects, which can potentially offset each other. This offers room to design reform packages in such a way that the negative short-run effects of individual policies can be alleviated. Policy makers often enact such larger policy packages, and more research on the optimal timing and order of its individual components could be beneficial to minimizing welfare losses for consumers, workers, and firms. This would, at the same time, strengthen the political support for the program.

# **6 Conclusion**

Understanding how regulations shape labor market dynamics is crucial for developing well-targeted and inclusive policies. We distinguish between two broad types of regulations, product market regulations and labor market regulations, affecting workers either indirectly or directly. Although not exhaustive, our review of PMR and LMR covers nearly 200 papers, focusing on heterogeneous impacts across countries in different stages of development, time horizons, industries, and worker demographics.

The main part of our paper is dedicated to reviewing and summarizing how PMR and LMR matter for labor market outcomes, respectively. Both types of regulations can be useful instruments to achieve more and better jobs—a conclusion in line with the findings of the World Bank’s latest Flagship Report on Jobs (2024). Beyond providing detailed evidence on individual regulation types, we also collect evidence on how LMR and PMR interact. This evidence is useful for the design of effective policies, which should be context-specific. The review also emphasizes the need for future research on this topic, especially regarding how the ex-ante regulatory stringency on product and labor markets mediates the effects of newly introduced policies.

Throughout the review, we also note that the effects of PMR and LMR in LMICs can differ widely from the effects of the same regulations in richer countries. At the same time, there is considerably less research in lower-income settings, most likely due to a lack of reliable data. Therefore, we conclude that the availability of consistent indicators for a wide set of countries and years is particularly important to evaluate the stringency of various regulations and heterogeneous effects across prevailing market conditions. The data that the OECD provides on its member countries are an important baseline and reference.

Our study holds important implications for policy makers. In general, regulatory agencies would benefit from developing the capacity to understand how new regulations could affect workers in their countries, monitor the effects of _de facto_ policy changes and key trends in real time, and adapt regulatory frameworks to changes in prevailing product and labor market conditions. Developing this capacity is as important, if not more so, than crafting the regulations themselves, yet far more effort has been expended in attempts to design and legislate an ideal regulatory framework. This capacity can provide information for governments to flexibly adapt regulations when the current constellation is not yielding the desired outcomes in the local context.

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