12/12/2002 - Increased competition in product markets, as well as being good for consumers, can also boost productivity and employment, according to a new study by the OECD. It argues that Japan and much of continental Europe could increase productivity levels by between 2 and 6 percent if they were to align their product market regulations with those in countries with the most competition-friendly environments.
Increased competition improves productivity through a more efficient use of resources. At the same time it can encourage innovation and the rapid spread of new technology. Reforms to make product markets more dynamic will also boost real wages as prices are lowered through increased competition. The study argues that reforms undertaken between the late 1970s to the late 1990s, such as the liberalisation of telecommunications industries, increased employment rates in OECD countries by an average of 1.5 percentage points, reaching 2.5 percentage points in economies where pro-competition policies were pursued most vigorously.
The potential for similar gains in employment rates exists today in countries with strict market regulations, the study adds.
Although such reforms will tend to reduce unemployment in the long-term and be of benefit to the working population as a whole, job losses and wage cuts could hit workers in the specific industries concerned. Such effects are often an important political barrier to reforms so it is essential that workers who have lost their jobs as a result of increased competition be re-employed as quickly as possible. The study adds that it is of concern that countries with restrictive regulation of product markets, and which need greater competition, also tend to have more highly regulated labour markets.
The study, Product Market Competition and Economic Performance, forms a chapter in the OECD's forthcoming Economic Outlook No. 72. Journalists who wish to receive an electronic version of the chapter may contact the Media Relations Division or go to the protected website for journalists . For further information, journalists are invited to contact Stephen Di Biasio, Media Relations Division (tel.  1 45 24 81 03).
Subscribers and readers at subscribing institutions can access the study via SourceOECD , our online library.
Non-subscribers will be able to purchase the study via our Online Bookshop.