of modest effects in most cases, the policy implication is not that these regulations do not matter. On the one hand, as noted, both minimum wage and EPL can affect distributional objectives. On the other hand, these regulations can generate undesirable economic or social impacts if they are established or operate in ways that exacerbate the labor market imperfections that they were designed to address.

The remainder of this paper is organized as follows. Methodological points that should be considered in assessing the impacts of labor market regulation are raised in the next section. The two following sections review the empirical evidence on the impacts of minimum wage and employment protection rules. In these sections, we begin with the main findings from the extensive literature in the developed countries and then focus on what is now known from the less advanced, but growing, body of research in developing countries. In the final section, conclusions are drawn, and policy implications are discussed.

# **Some notes on methodology**

Qualitative analysis of labor regulations (and other institutions) has been important historically, especially among researchers with an institutionalist perspective. However, the literature is now dominated by quantitative analysis, typically using econometric techniques to isolate the impacts of regulation. Studies have been limited to a narrow set of economic impacts, including employment, unemployment, earnings, job and labor turnover, and productivity. Although it is reasonable to expect that labor regulations might also have effects on social variables such as inclusion and fairness, these relationships have not been directly analyzed.<sup>1</sup> The first generation of quantitative research was based almost exclusively on reduced-form models that used aggregate data to explain the cross-country variation in outcomes by differences in national labor market institutions. This approach remains prevalent, but it increasingly shares the stage with a second generation of research that uses longitudinal microdata to estimate fixed-effects models that isolate the variation in outcomes in a single jurisdiction over a period during which regulatory change has occurred.

Regardless of the method, reliably isolating the impacts of labor market regulations is complicated by challenges that researchers face in terms of identification, measurement, and modelling and interpretation.

_Identification issues_ result from both the endogeneity of labor market institutions and the interactions between them. The endogeneity problem stems from the fact that institutions themselves are not exogenous variables but reflect the legal and cultural fabric of the societies in which they have evolved (Botero et al. 2004; Algan and Cahuc 2006; Aghion et al. 2010; Alesina et al. 2010). This situation can make it difficult to attribute variations in outcomes to the institutions themselves. This is especially problematic when analysis is based on crosscountry aggregate data. Although single-country panels avoid this source of misidentification, they are not immune from endogeneity issues stemming from time-based sources. For example, certain institutional changes that are likely to be introduced at a particular point in the business cycle may be associated with outcomes that may be due to the cyclical factors themselves.Interactions between different labor regulations and institutions add to the identification challenge. Countries typically have packages of interdependent rules and 4