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The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle

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  • Christian Haefke
  • Monique Ebell

Abstract

We examine product market regulation as an explanation for divergent US and continental European labor market performance. First, we show that the choice of bargaining regime is crucial for the effect of product market competition on unemployment rates, being substantial under collective and negligible under individual bargaining. Since the choice of bargaining institution is important, we endogenize it. When product market competition is low, collective bargaining emerges endogenously, while individual bargaining emerges under higher competition. In the calibrated model, we find that increasing entry costs from US to European levels causes equilibrium unemployment rates to increase from 5.5% to 8.3%. Our results also suggest that the strong decline in collective bargaining coverage and unionization in the US and UK over the last two decades might have been a direct consequence of the Reagen/Thatcher product market reforms of the early 80's

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 759.

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Date of creation: 2004
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Handle: RePEc:red:sed004:759

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Keywords: Wage bargaining; European Unemployment Puzzle; product market competition; barriers to entry;

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References

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  1. Spector, David, 2002. "Competiton and the capital-labor conflict," CEPREMAP Working Papers (Couverture Orange) 0207, CEPREMAP.
  2. Bertrand, Marianne & Kramarz, Francis, 2001. "Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry," CEPR Discussion Papers 3039, C.E.P.R. Discussion Papers.
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  6. 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).
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  9. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  10. Van Reenen, John, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U.K. Companies," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 195-226, February.
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  12. Barry T. Hirsch & David A. Macpherson, 2003. "Union Membership and Coverage Database from the Current Population Survey: Note," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(2), pages 349-354, January.
  13. Hamermesh, Daniel S & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
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  15. Cahuc, Pierre & Gianella, Christian & Goux, Dominique & Zylberberg, Andre, 2002. "Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms," CEPR Discussion Papers 3510, C.E.P.R. Discussion Papers.
  16. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
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Cited by:
  1. Boulhol, Hervé & Dobbelaere, Sabien & Maioli, Sara, 2006. "Imports as Product and Labor Market Discipline," IZA Discussion Papers 2178, Institute for the Study of Labor (IZA).
  2. Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Working Papers 07-03, Utrecht School of Economics.
  3. Messina, Julián, 2003. "The role of product market regulations in the process of structural change," Working Paper Series 0217, European Central Bank.
  4. Monique Ebell, 2006. "Individual Wage Bargaining and Business Cycles," 2006 Meeting Papers 755, Society for Economic Dynamics.
  5. Berger, Helge & Danninger, Stephan, 2006. "The employment effects of labor and product markets deregulations and their implications for structural reform," Discussion Papers 2006/10, Free University Berlin, School of Business & Economics.
  6. Zanetti, Francesco, 2009. "Effects of product and labor market regulation on macroeconomic outcomes," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 320-332, June.
  7. Lei Fang & Richard Rogerson, 2009. "Product market regulation and market work: a benchmark analysis," Working Paper 2009-07, Federal Reserve Bank of Atlanta.
  8. Bart Hobijn & Ayşegül Şahin, 2013. "Firms And Flexibility," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 922-940, 01.
  9. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," Boston College Working Papers in Economics 663, Boston College Department of Economics, revised 08 Aug 2008.

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