Product Market Regulation and Market Work: A Benchmark Analysis

26 Pages Posted: 7 Feb 2007 Last revised: 23 Sep 2010

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

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Date Written: February 2007

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. We find that product market regulations affect time devoted to market work in effectively the same fashion as do taxes on labor income or consumption. 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.

Suggested Citation

Fang, Lei and Rogerson, Richard, Product Market Regulation and Market Work: A Benchmark Analysis (February 2007). NBER Working Paper No. w12891. Available at SSRN: https://ssrn.com/abstract=961812

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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