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Product Market Reforms, Labour Market Institutions and Unemployment

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  • Griffith, Rachel
  • Harrison, Rupert
  • Macartney, Gareth

Abstract

We analyze the impact of product market competition on unemployment and wages, and how this depends on labour market institutions. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased product market competition reduces unemployment, and that it does so more in countries with labour market institutions that increase worker bargaining power. The theoretical intuition is that 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 also find that the effect of increased competition on real wages is beneficial to workers, but less so when they have high bargaining power. Intuitively, real wages increase through a drop in the general price level, but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5599.

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Date of creation: Apr 2006
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Handle: RePEc:cpr:ceprdp:5599

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Keywords: competition; product market regulation; unemployment; wage bargaining;

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  1. Belot, Michele & van Ours, Jan C., 2001. "Unemployment and Labor Market Institutions: An Empirical Analysis," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 403-418, December.
  2. Marianne Bertrand & Francis Kramarz, 2002. "Does Entry Regulation Hinder Job Creation? Evidence From The French Retail Industry," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1369-1413, November.
  3. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
  4. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Product Market Reforms and Employment in OECD Countries," OECD Economics Department Working Papers 472, OECD Publishing.
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  1. It is time to move away from policy witchcraft and into an era where evidence is taken seriously
    by brumley in British Politics and Policy at LSE on 2012-05-28 13:40:02
  2. It is time to move away from policy witchcraft and into an era where evidence is taken seriously
    by Blog Admin in Impact of Social Sciences on 2012-05-29 10:00:44
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