Product Market Deregulation and the U.S. Employment Miracle
Humboldt University of Berlin - Faculty of Economics
Institute for Advanced Studies (IHS); NYU, Abu Dhabi; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 1946
We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual wage bargaining. Product market competition affects unemployment by two channels: the output expansion effect and a countervailing effect due to a hiring externality. Competition is then linked to barriers to entry. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980's and 1990's could be attributed to product market deregulation. Our quantitative analysis suggests that under individual bargaining, a decrease of less than two-tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount.
Number of Pages in PDF File: 41
Keywords: product market competition, barriers to entry, wage bargaining
JEL Classification: E24, J63, L16, O00
Date posted: January 30, 2006
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