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
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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 10-20, Duke University, Department of Economics.
- Petro Peretto, 2006. "The Employment (and Output) of Nations: Theory and Policy Implications," 2006 Meeting Papers 280, Society for Economic Dynamics.
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
- 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.:
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