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The Impact of Product Market Competition on Employment and Wages

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  • Amable, Bruno

    ()
    (Paris School of Economics)

  • Gatti, Donatella

    ()
    (University of Paris 13)

Abstract

Standard economic wisdom generally stresses the benefits of increased competition on the product market. This paper proposes a model of monopolistic competition with an endogenous determination of workers flows in and out of unemployment, where wages are determined according to an efficiency wage mechanism. We show that an increase in product market competition boosts the hiring rate as well as the separation rate. Hence, the efficiency wage schedule compatible with more competition shifts upward. An adverse effect on workers’ incentive is at work which pushes real wages up to the point that increased competition may indeed generate employment losses rather than gains.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 276.

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Length: 41 pages
Date of creation: Mar 2001
Date of revision:
Publication status: published in: Oxford Economic Papers, 2004, 56 (4), 667-686
Handle: RePEc:iza:izadps:dp276

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Keywords: efficiency wage; imperfect competition; Unemployment;

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References

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  1. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
  2. bertola, G. & Rogerson, R., 1996. "Institutions and Labor Reallocation," Papers 272, Banca Italia - Servizio di Studi.
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  4. Gersbach, Hans, 2000. "Promoting Product Market Competition to Reduce Unemployment in Europe: An Alternative Approach?," Kyklos, Wiley Blackwell, vol. 53(2), pages 117-33.
  5. Hans Gersbach, 1999. "Product market competition, unemployment and income disparities," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(2), pages 221-240, June.
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  9. Coe, David T & Snower, Dennis J., 1997. "Policy Complementarities: The Case for Fundamental Labour Market Reform," CEPR Discussion Papers 1585, C.E.P.R. Discussion Papers.
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  12. Michael Burda, 2000. "Product Market Regulation and Labor Market Outcomes: How can Deregulation Create Jobs?," CESifo Working Paper Series 230, CESifo Group Munich.
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  17. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  18. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers 2420, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Jo Seldeslachts, 2002. "Interactions Between Product and Labour Market Reforms," UFAE and IAE Working Papers 519.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Gersbach, Hans, 2003. "Structural Reforms and the Macroeconomy: The Role of General Equilibrium Effects," CEPR Discussion Papers 4043, C.E.P.R. Discussion Papers.
  3. Moretti, Laura, 2014. "Inflation targeting and product market deregulation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 372-386.
  4. Fiori, Giuseppe & Nicoletti, Giuseppe & Scarpetta, Stefano & Schiantarelli, Fabio, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," IZA Discussion Papers 2770, Institute for the Study of Labor (IZA).
  5. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print halshs-00120584, HAL.
  6. Paul Frijters & Michael A. Shields, 2010. "Are Early Educational Choices Affected by Unemployment Benefits? New Theory," Discussion Papers Series 447, School of Economics, University of Queensland, Australia.
  7. Kohns, Stephan, 2001. "Testing for Asymmetry in British, German and US Unemployment Data," IZA Discussion Papers 341, Institute for the Study of Labor (IZA).

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