Product Market Deregulation and the U.S. Employment Miracle
Humboldt University of Berlin - Faculty of Economics
Institute for Advanced Studies (IHS); Institute for the Study of Labor (IZA); Instituto de Análisis Económic (IAE) Barcelona
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, O00working papers series
Date posted: January 30, 2006
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