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Product Market Deregulation and the U.S. Employment Miracle

41 Pages Posted: 30 Jan 2006  

Monique Ebell

Humboldt University of Berlin - Faculty of Economics

Christian Haefke

Institute for Advanced Studies (IHS); NYU, Abu Dhabi; IZA Institute of Labor Economics

Date Written: January 2006

Abstract

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.

Keywords: product market competition, barriers to entry, wage bargaining

JEL Classification: E24, J63, L16, O00

Suggested Citation

Ebell, Monique and Haefke, Christian, Product Market Deregulation and the U.S. Employment Miracle (January 2006). IZA Discussion Paper No. 1946. Available at SSRN: https://ssrn.com/abstract=879761

Monique Ebell

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
D-10178 Berlin
Germany
++49-30-2093-5936 (Phone)

HOME PAGE: http://www.wiwi.hu-berlin.de/wpol/html/staff/Monique.html

Christian Haefke (Contact Author)

Institute for Advanced Studies (IHS) ( email )

Stumpergasse 56
A-1060 Vienna
Austria

NYU, Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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