The Employment (and Output) of Nations: Theory and Policy Implications
AbstractI study a model where firms bargain with unions over wages and employment levels. This interaction generates unemployment. Households take unemployment risk as given in making their participation decisions. I am thus able to study the interactions of product and labor market institutions in a three-states representation of the labor market. Unemployment matters because is inserts a wedge between labor supply (participation) and employment. Employment matters because it determines output. I uncover two feedback mechanisms, each reinforced by endogenous participation. The firt exploits the endogeneity of the number of firms to amplify the adverse effects on output of regulations and frictions that raise labor costs, work practice rigidities and the bargaining power of workers. The second exploits the endogeneity of market size to amplify the adverse effects of product market frictions that raise the costs of entry or of operation for firms. The multiplier effects due to these feedback mechanisms have interesting implications for the current policy debate. Labor market reforms that reduce the cost of labor are actually more attractive when one considers the endogenous structure of the product market. Similarly, pro-competitive product market reforms are more attractive when one considers the positive feedback on market structure that runs through the labor market
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c011_014.
Length: 33 pages JEL Classification: E1, J23
Date of creation: Jun 2006
Date of revision:
Product Market; Labor Market; Market Structure; Employment; Unemployment;
Other versions of this item:
- Pietro F. Peretto, 2010. "The Employment (and Output) of Nations: Theory and Policy Implications," Working Papers, Duke University, Department of Economics 10-20, Duke University, Department of Economics.
- Petro Peretto, 2006. "The Employment (and Output) of Nations: Theory and Policy Implications," 2006 Meeting Papers, Society for Economic Dynamics 280, Society for Economic Dynamics.
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-01 (All new papers)
- NEP-LAB-2006-12-01 (Labour Economics)
- NEP-MAC-2006-12-01 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Spector, David, 2004.
"Competition and the capital-labor conflict,"
European Economic Review, Elsevier,
Elsevier, vol. 48(1), pages 25-38, February.
- Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
- Paul Geroski & Paul Gregg & John van Reenen, 1995. "Market Imperfections and Employment," OECD Jobs Study Working Papers 5, OECD Publishing.
- Nickell, S. & Layard, R., 1997.
"Labour Market Institutions and Economic Performance,"
Papers, Centre for Economic Performance & Institute of Economics
23, Centre for Economic Performance & Institute of Economics.
- Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
- Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
- Gersbach, Hans, 2000. "Promoting Product Market Competition to Reduce Unemployment in Europe: An Alternative Approach?," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 53(2), pages 117-33.
- Michael K. Salemi, 2007. "Long-run and Cyclic Movements in the Unemployment Rate in Hong Kong: A Dynamic, General Equilibrium Approach," Working Papers 192007, Hong Kong Institute for Monetary Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michaela Rank).
If references are entirely missing, you can add them using this form.