Regulating shop opening hours harms both consumers and workers
16 August 2011
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Economic Theory
15 August 2011
Uncategorized
Economic Theory
‘Hundreds of thousands [of workers] should not have to stand to attention late into the night for the mere convenience of a few yuppies!’ These passionate words, uttered by German union leader Lorenz Schwegler, underscore a deep controversy surrounding the proposed relaxation of Germany’s strict regulations on shop opening hours.
Schwegler’s concern for the welfare of retailer workers and his dismissal of any potential inconvenience to consumers epitomise much union support for such laws. Interest groups’ desire to achieve particular social goals has heightened this distrust of the deregulated market. Some religious organisations have sought to shutter shops on Sundays in order to protect the Sabbath, while social planners have envisioned that such regulation increases demand for smaller, independent retailers. For their part, some economists have theorised that the regulation of opening hours could potentially protect consumers from price increases. These factors encouraged governments to regulate retail opening hours and have ensured the longevity of such restrictions.
However, a growing body of theoretical and empirical research has begun to challenge the previous consensus that shop-closing regulations could be welfare enhancing. On the contrary, this research demonstrates that such controls harm workers and consumers, while preventing businesses the freedom of determining when it is in their best interest to open their doors. Studies of liberalisations in North America and Europe suggest that such laws depress employment growth, harm prospective workers with non-traditional schedules, and may not protect consumers from price increases. Although research has confirmed the suspicion that larger outlets benefit to a greater extent from the liberalisation of shop-closing regulations than their smaller counterparts, such regulations serve only to protect the inefficiency of the latter, thereby harming consumers.
In my own research, I have sought to enhance this literature by studying the effects of deregulation on consumer prices, which economists supportive of shop-closing regulations have suggested should increase in the wake of a liberalisation. I focus on the German state-level liberalisation of shop-closing regulations (Ladenschlußgesetz) in2006 and 2007 that resulted when lawmaking power on the issue was devolved from the federal government. Given that some German states chose to deregulate while others did not, I perform a difference-in-differences estimation on consumer price index and sales figures specific to the grocery retail sector throughout the country. I supplement this estimation with a panel data analysis of both variables.
I find that far from causing an increase in consumer prices, the liberalisation of shop-closing regulations in Germany actually lowered prices to some extent, though revenue was unaffected by the deregulation. This decrease in prices was probably driven by productivity increases created by the smoothing of consumer traffic over a longer period of time and the greater ability of consumers to compare prices in a deregulated environment. These results complement the growing body of research that questions the utility of shop-closing regulations.
Notwithstanding liberalisation in a number of jurisdictions and the growing consensus that such restrictions are not welfare enhancing, these decades-old regulations remain in effect throughout much of Europe, where governments in France, Germany, Netherlands, Norway, Spain and Switzerland maintain extensive trading restrictions. Despite some reform in the United Kingdom provided by the Sunday Trading Act of 1994, the nation itself maintains a patchwork of regulations. While Sunday shopping is unrestricted in Scotland, it remains somewhat restricted in England and Wales and is highly regulated in Northern Ireland. My research, along with many of the studies that it reviews, suggests that Schwegler’s solidarity-clad cry may have done German workers and consumers more harm than good, which raises serious concerns about shop-closing regulations in the United Kingdom and other jurisdictions.
Schwegler’s concern for the welfare of retailer workers and his dismissal of any potential inconvenience to consumers epitomise much union support for such laws. Interest groups’ desire to achieve particular social goals has heightened this distrust of the deregulated market. Some religious organisations have sought to shutter shops on Sundays in order to protect the Sabbath, while social planners have envisioned that such regulation increases demand for smaller, independent retailers. For their part, some economists have theorised that the regulation of opening hours could potentially protect consumers from price increases. These factors encouraged governments to regulate retail opening hours and have ensured the longevity of such restrictions.
However, a growing body of theoretical and empirical research has begun to challenge the previous consensus that shop-closing regulations could be welfare enhancing. On the contrary, this research demonstrates that such controls harm workers and consumers, while preventing businesses the freedom of determining when it is in their best interest to open their doors. Studies of liberalisations in North America and Europe suggest that such laws depress employment growth, harm prospective workers with non-traditional schedules, and may not protect consumers from price increases. Although research has confirmed the suspicion that larger outlets benefit to a greater extent from the liberalisation of shop-closing regulations than their smaller counterparts, such regulations serve only to protect the inefficiency of the latter, thereby harming consumers.
In my own research, I have sought to enhance this literature by studying the effects of deregulation on consumer prices, which economists supportive of shop-closing regulations have suggested should increase in the wake of a liberalisation. I focus on the German state-level liberalisation of shop-closing regulations (Ladenschlußgesetz) in2006 and 2007 that resulted when lawmaking power on the issue was devolved from the federal government. Given that some German states chose to deregulate while others did not, I perform a difference-in-differences estimation on consumer price index and sales figures specific to the grocery retail sector throughout the country. I supplement this estimation with a panel data analysis of both variables.
I find that far from causing an increase in consumer prices, the liberalisation of shop-closing regulations in Germany actually lowered prices to some extent, though revenue was unaffected by the deregulation. This decrease in prices was probably driven by productivity increases created by the smoothing of consumer traffic over a longer period of time and the greater ability of consumers to compare prices in a deregulated environment. These results complement the growing body of research that questions the utility of shop-closing regulations.
Notwithstanding liberalisation in a number of jurisdictions and the growing consensus that such restrictions are not welfare enhancing, these decades-old regulations remain in effect throughout much of Europe, where governments in France, Germany, Netherlands, Norway, Spain and Switzerland maintain extensive trading restrictions. Despite some reform in the United Kingdom provided by the Sunday Trading Act of 1994, the nation itself maintains a patchwork of regulations. While Sunday shopping is unrestricted in Scotland, it remains somewhat restricted in England and Wales and is highly regulated in Northern Ireland. My research, along with many of the studies that it reviews, suggests that Schwegler’s solidarity-clad cry may have done German workers and consumers more harm than good, which raises serious concerns about shop-closing regulations in the United Kingdom and other jurisdictions.
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