"Labour Market Deregulation and Wage Dispersion. Does Product Market Competition Matter? The Case of the EU Electricity Industry"

In this work we analyse possible interaction effects of products and labour market deregulation on sectoral wages dispersion. In particular, we consider firm level data for the electricity generation sectors of twelve EU countries observed over the period 2002-08 which have been object of important deregulatory reforms. Our results suggest that higher barriers to entry in the product market are associated to a higher wage dispersion. Moreover, we find that the effects of a more liberalized labor market depend on the degree of product market regulation. When the goods market is tightly regulated, a less stringent EPL raises earnings inequality, while wages dispersion decreases when the labour markets deregulation is introduced in a more competitive environment. We argue these results derive from the combined effects of competition intensity on workforce composition and the labor market deregulation.