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Product market regulation and market work: a benchmark analysis

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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 as well as in a standard dynamic model of entry and exit. We find that product market regulations affect time devoted to market work in effectively the same fashion that taxes on labor income or consumption do. 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

  • Lei Fang & Richard Rogerson, 2009. "Product market regulation and market work: a benchmark analysis," FRB Atlanta Working Paper 2009-07, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2009-07
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    More about this item

    Keywords

    Workweek;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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