The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle
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'sDownload Info
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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 759.Length:
Date of creation: 2004
Date of revision:
Handle: RePEc:red:sed004:759
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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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Web page: http://www.EconomicDynamics.org/society.htm
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Related research
Keywords: 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-02 (All new papers)
- NEP-EEC-2004-08-02 (European Economics)
- NEP-REG-2004-08-02 (Regulation)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Winfried Koeniger & Julien Prat, 2007.
"Employment Protection, Product Market Regulation and Firm Selection,"
Working Papers
07-03, Utrecht School of Economics.
- Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Economic Journal, Royal Economic Society, vol. 117(521), pages 302-332, 06.
- Koeniger, Winfried & Prat, Julien, 2006. "Employment Protection, Product Market Regulation and Firm Selection," IZA Discussion Papers 1960, Institute for the Study of Labor (IZA).
- H. Boulhol & S. Dobbelaere & S. Maioli, 2007.
"Imports as product and labour market discipline,"
Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium
07/479, Ghent University, Faculty of Economics and Business Administration.
- Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011. "Imports as Product and Labour Market Discipline," British Journal of Industrial Relations, London School of Economics, vol. 49(2), pages 331-361, 06.
- 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).
- Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2009. "Imports as Product and Labour Market Discipline," Tinbergen Institute Discussion Papers 09-002/3, Tinbergen Institute.
- Lei Fang & Richard Rogerson, 2011.
"Product Market Regulation and Market Work: A Benchmark Analysis,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 3(2), pages 163-88, April.
- Lei Fang & Richard Rogerson, 2007. "Product Market Regulation and Market Work: A Benchmark Analysis," NBER Working Papers 12891, National Bureau of Economic Research, Inc.
- Lei Fang & Richard Rogerson, 2009. "Product market regulation and market work: a benchmark analysis," Working Paper 2009-07, Federal Reserve Bank of Atlanta.
- Helge Berger & Stephan Danninger, 2007.
"The Employment Effects of Labor and Product Market Deregulation and Their Implications for Structural Reform,"
IMF Staff Papers,
Palgrave Macmillan, vol. 54(3), pages 591-619, July.
- 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.
- Helge Berger & Stephan Danninger, 2006. "The Employment Effects of Labor and Product Markets Deregulation and their Implications for Structural Reform," CESifo Working Paper Series 1709, CESifo Group Munich.
- Messina, Julian, 2006.
"The role of product market regulations in the process of structural change,"
European Economic Review,
Elsevier, vol. 50(7), pages 1863-1890, October.
- Julian Messina, 2003. "The role of product market regulations in the process of structural change," Working Paper Series 217, European Central Bank.
- Bart Hobijn & Aysegül Sahin, 2007. "Firms and flexibility," Staff Reports 311, Federal Reserve Bank of New York.
- 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.
- 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).
- Monique Ebell, 2006. "Individual Wage Bargaining and Business Cycles," 2006 Meeting Papers 755, Society for Economic Dynamics.
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