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Product market deregulation and the U.S. employment miracle

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  • Monique Ebell
  • Christian Haefke

Abstract

We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual wage bargaining. Product market competition affects unemployment by two channels: the output expansion effect and a countervailing effect due to a hiring externality. Competition is then linked to barriers to entry. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980’s and 1990’s could be attributed to product market deregulation. Our quantitative analysis suggests that under individual bargaining, a decrease of less than two tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 930.

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Date of creation: Dec 2002
Date of revision: Jan 2006
Handle: RePEc:upf:upfgen:930

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Web page: http://www.econ.upf.edu/

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Keywords: Product market competition; barriers to entry; wage bargaining;

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