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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. Oswald, A. J., 1995. "Efficient contracts are on the labour demand curve: Theory and facts," Labour Economics, Elsevier, vol. 2(1), pages 102-102, March.
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  4. 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).
  5. Christian Haefke, 2001. "Shocks and institutions in a job matching model," Economics Working Papers 568, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2001.
  6. Eric Smith, 1999. "Search, Concave Production, and Optimal Firm Size," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 456-471, April.
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  9. 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.
  10. 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.
  11. 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.
  12. Ziesemer,Thomas, 2001. "Monopolistic Competition and Search Unemployment: A Pissarides-Dixit-Stiglitz model," Research Memorandum 006, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  13. 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.
  14. Spector, David, 2002. "Competiton and the capital-labor conflict," CEPREMAP Working Papers (Couverture Orange) 0207, CEPREMAP.
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  16. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-45, September.
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Citations

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Cited by:
  1. 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.
  2. Messina, Julián, 2003. "The role of product market regulations in the process of structural change," Working Paper Series 0217, European Central Bank.
  3. Lei Fang & Richard Rogerson, 2009. "Product market regulation and market work: a benchmark analysis," Working Paper 2009-07, Federal Reserve Bank of Atlanta.
  4. Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Working Papers 07-03, Utrecht School of Economics.
  5. 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).
  6. Monique Ebell, 2006. "Individual Wage Bargaining and Business Cycles," 2006 Meeting Papers 755, Society for Economic Dynamics.
  7. Herv� Boulhol & Sabien Dobbelaere & Sara Maioli, 2009. "Imports as Product and Labour Market Discipline," Tinbergen Institute Discussion Papers 09-002/3, Tinbergen Institute.
  8. Zanetti, Francesco, 2009. "Effects of product and labor market regulation on macroeconomic outcomes," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 320-332, June.
  9. Bart Hobijn & Aysegül Sahin, 2007. "Firms and flexibility," Staff Reports 311, Federal Reserve Bank of New York.

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