Rachel Griffith () (Institute for Fiscal Studies and University College London) Rupert Harrison (Institute for Fiscal Studies) Gareth Macartney () (Institute for Fiscal Studies and University College London)
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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 Institute for Fiscal Studies in its series IFS Working Papers with number
W06/06.
Length: 39 pp. Date of creation: Mar 2006 Date of revision: Handle: RePEc:ifs:ifsewp:06/06
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Cited by: (explanations, 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.)
Paolo Buccirossi & Lorenzo Ciari & Tomaso Duso & Giancarlo Spagnolo & Cristiana Vitale, 2009.
"Competition Policy and Productivity Growth: An Empirical Assessment,"
Discussion Papers
283, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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