The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle
AbstractWe 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 InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 759.
Date of creation: 2004
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Wage bargaining; European Unemployment Puzzle; product market competition; barriers to entry;
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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