Product Market Reforms, Labour Market Institutions and Unemployment

25 Pages Posted: 2 May 2007

See all articles by Rachel Griffith

Rachel Griffith

Institute for Fiscal Studies (IFS); University of Manchester; Centre for Economic Policy Research (CEPR)

Rupert Harrison

Institute for Fiscal Studies (IFS)

Gareth Macartney

Institute for Fiscal Studies (IFS)

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Abstract

We analyse the impact of product market competition on unemployment, and how this depends on labour market institutions. Theoretically, both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased competition reduces unemployment, more so in countries with labour market institutions that increase worker bargaining power. We also find that competition increases real wages but less so when bargaining power is high.

Suggested Citation

Griffith, Rachel and Harrison, Rupert and Macartney, Gareth, Product Market Reforms, Labour Market Institutions and Unemployment. Economic Journal, Vol. 117, No. 519, pp. C142-C166, March 2007. Available at SSRN: https://ssrn.com/abstract=981048 or http://dx.doi.org/10.1111/j.1468-0297.2007.02039.x

Rachel Griffith (Contact Author)

Institute for Fiscal Studies (IFS) ( email )

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University of Manchester ( email )

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HOME PAGE: http://www.ifs.org.uk/people/profile?id=37

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Rupert Harrison

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Gareth Macartney

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)

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