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Deregulation shock in product market and unemployment

Author

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  • Luisito Bertinelli

    (Faculty of Law, Economics and Finance - University of Luxembourg [Luxembourg])

  • Olivier Cardi

    (ERMES - Equipe de recherche sur les marches, l'emploi et la simulation - UP2 - Université Panthéon-Assas - CNRS - Centre National de la Recherche Scientifique, X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique)

  • Partha Sen

    (Dehli School of Economics - Dehli School of Economics)

Abstract

In a dynamic general equilibrium model with endogenous markups and labor market frictions, we investigate the effects of increased product market competition. Unlike most macroeconomic models of search, we endogenize the labor supply along the extensive margin. We show that beneficial effects in labor market outcomes require that the condition for saddle-path stability must be fulfilled whereas instability yields detrimental effects. Additionally, we find numerically that most of the decline in the unemployment rate can be attributed to the increase in the labor force, while the number of job seekers remains fairly unchanged. For a calibration capturing alternatively European and the U.S. labor markets, a deregulation episode, which lowers the markup by 3 percentage points, results in a fall in the unemployment rate by 0.1 and 0.05 percentage point, respectively, while the labor share is almost unaffected in the long-run.

Suggested Citation

  • Luisito Bertinelli & Olivier Cardi & Partha Sen, 2011. "Deregulation shock in product market and unemployment," Working Papers hal-00589228, HAL.
  • Handle: RePEc:hal:wpaper:hal-00589228
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    Cited by:

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    2. Cardi, Olivier & Restout, Romain, 2015. "Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect," Journal of International Economics, Elsevier, vol. 97(2), pages 249-265.
    3. Igna, Ioana A. & Rincon-Aznar, Ana & Venturini, Francesco, 2019. "Upstream regulation, factor demand and productivity: Cross-industry differences in OECD countries, 1975–2007," Information Economics and Policy, Elsevier, vol. 49(C).
    4. Rahul Anand & Purva Khera, 2016. "Macroeconomic Impact of Product and Labor Market Reforms on Informality and Unemployment in India," IMF Working Papers 2016/047, International Monetary Fund.
    5. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2015. "The domestic and international effects of euro area market reforms," Research in Economics, Elsevier, vol. 69(4), pages 555-581.
    6. Oscar Afonso, 2023. "Losers and losses of COVID-19: a directed technical change analysis with fiscal and monetary policies," Economic Change and Restructuring, Springer, vol. 56(3), pages 1777-1821, June.

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    More about this item

    Keywords

    Deregulation; Imperfect competition; Endogenous markup; Search theory; Unemployment; Deregulation.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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