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Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets

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  • Olivier Blanchard
  • Francesco Giavazzi

Abstract

Product and labor market deregulation are fundamentally about reducing and redistributing rents, leading economic players to adjust in turn to this new distribution. Thus, even if deregulation eventually proves beneficial, it comes with strong distribution and dynamic effects. The transition may imply the decline of incumbent firms. Unemployment may increase for a while. Real wages may decrease before recovering, and so on. To study these issues, we build a model based on two central assumptions: Monopolistic competition in the goods market, which determines the size of rents; and bargaining in the labor market, which determines the distribution of rents between workers and firms. We then think of product market regulation as determining both the entry costs faced by firms, and the degree of competition between firms. We think of labor market regulation as determining the bargaining power of workers. Having characterized the effects of labor and product market deregulation, we then use our results to study two specific issues. First, to shed light on macroeconomic evolutions in Europe over the last twenty years, in particular on the behavior of the labor share. Second, to look at political economy interactions between product and labor market deregulation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8120.

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Date of creation: Feb 2001
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Publication status: published as Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects Of Regulation And Deregulation In Goods And Labor Markets," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 879-907, August.
Handle: RePEc:nbr:nberwo:8120

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  1. Spector, David, 2004. "Competition and the capital-labor conflict," European Economic Review, Elsevier, Elsevier, vol. 48(1), pages 25-38, February.
  2. Ricardo J. Caballero & Mohamad L. Hammour, 1998. "The Macroeconomics of Specificity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(4), pages 724-767, August.
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  6. Paul Joskow & Nancy L. Rose, 1987. "The Effects of Economic Regulation," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 447, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 896-908, December.
  8. Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
  9. Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers, Centro de Estudios Monetarios Y Financieros- 9905, Centro de Estudios Monetarios Y Financieros-.
  10. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1146-55, December.
  11. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2420, C.E.P.R. Discussion Papers.
  12. Argia M. Sbordone, 2001. "An Optimizing Model of U.S. Wage and Price Dynamics," Departmental Working Papers, Rutgers University, Department of Economics 200110, Rutgers University, Department of Economics.
  13. Ricardo J. Caballero & Mohamad L. Hammour, 1997. "Jobless Growth: Appropriability, Factor Substitution, and Unemployment," NBER Working Papers 6221, National Bureau of Economic Research, Inc.
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  1. Las raíces políticas de la crisis del Euro
    by Cives in Politikon on 2012-05-22 11:48:47
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