Product Market Regulation and Market Work: A Benchmark Analysis

Federal Reserve Bank of Atlanta Working Paper 2009-7

51 Pages Posted: 13 Jul 2009

See all articles by Lei Fang

Lei Fang

Federal Reserve Bank of Atlanta

Richard Rogerson

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER); Princeton University - Woodrow Wilson School of Public and International Affairs

Multiple version iconThere are 2 versions of this paper

Date Written: March 2009

Abstract

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation as well as in a standard dynamic model of entry and exit. We find that product market regulations affect time devoted to market work in effectively the same fashion that taxes on labor income or consumption do. In particular, if product market regulations are to affect aggregate market work in this model, the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two-sector model that industry-level analysis is of little help in assessing the aggregate effects of product market regulation.

Keywords: labor supply, product market regulation, entry barriers

JEL Classification: E24, J22, L5

Suggested Citation

Fang, Lei and Rogerson, Richard, Product Market Regulation and Market Work: A Benchmark Analysis (March 2009). Federal Reserve Bank of Atlanta Working Paper 2009-7. Available at SSRN: https://ssrn.com/abstract=1433125 or http://dx.doi.org/10.2139/ssrn.1433125

Lei Fang (Contact Author)

Federal Reserve Bank of Atlanta ( email )

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Richard Rogerson

Arizona State University (ASU) - Economics Department ( email )

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National Bureau of Economic Research (NBER)

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Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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