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Product Market Regulation and Market Work: A Benchmark Analysis

  • Lei Fang
  • Richard Rogerson

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark model of time allocation. Product market regulations affect market work in effectively the same fashion as labor or consumption taxes. For product market regulations to affect aggregate market work, the key driving force is the size of income transfers associated with the regulations, and the key propagation mechanism is the labor supply elasticity. We show that industry level analysis is of little help in assessing the aggregate effects of product market regulation. (JEL E24, J22, L51)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.2.163
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File URL: http://www.aeaweb.org/aej/mac/app/2009-0062_app.pdf
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 2 (April)
Pages: 163-88

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:2:p:163-88
Note: DOI: 10.1257/mac.3.2.163
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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  1. Richard B. Freeman & Ronald Schettkat, 2002. "Marketization of Production and the US-Europe Employment Gap," NBER Working Papers 8797, National Bureau of Economic Research, Inc.
  2. Comin, D. & Gertler, M., 2003. "Medium Term Business Cycles," Working Papers 03-05, C.V. Starr Center for Applied Economics, New York University.
  3. Ebell, Monique & Haefke, Christian, 2008. "Product Market Deregulation and the U.S. Employment Miracle," Economics Series 223, Institute for Advanced Studies.
  4. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 1-37.
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  6. Marianne Bertrand & Francis Kramarz, 2001. "Does Entry Regulation Hinder Job Creation ? Evidence from the French Retail Industry," Working Papers 2001-12, Centre de Recherche en Economie et Statistique.
  7. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
  8. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  9. 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.
  10. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
  11. Alesina, Alberto F & Glaeser, Edward L & Sacerdote, Bruce, 2005. "Work and Leisure in the US and Europe: Why So Different?," CEPR Discussion Papers 5140, C.E.P.R. Discussion Papers.
  12. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
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  14. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," Ratio Working Papers 57, The Ratio Institute.
  15. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
  16. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers 2420, C.E.P.R. Discussion Papers.
  17. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
  18. Paloma Lopez-Garcia, 2002. "Labour Market Performance and Start-Up Costs: OECD Evidence," CEP Discussion Papers dp0565, Centre for Economic Performance, LSE.
  19. Olovsson, Conny, 2004. "Why do Europeans Work so Little?," Seminar Papers 727, Stockholm University, Institute for International Economic Studies.
  20. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
  21. Christian Haefke & Monique Ebell, 2004. "The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle," 2004 Meeting Papers 759, Society for Economic Dynamics.
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