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Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets

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  • Olivier Blanchard
  • Francesco Giavazzi

Abstract

Product and labor market deregulation reduce and redistribute rents, leading economic players to adjust to this new distribution. It typically comes with distribution and dynamic effects. To study these effects, we build a macroeconomic model on two central assumptions: monopolistic competition in the goods market, which determines the size of rents; and bargaining in the labor market, which determines the distribution of rents. Product market regulation determines entry costs and the degree of competition. Labor market regulation determines the bargaining power of workers. We show the effects of deregulation. We then use our results to discuss the political economy of deregulation, and recent macroeconomic evolutions in Europe.

Suggested Citation

  • Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 879-907.
    • Handle: RePEc:oup:qjecon:v:118:y:2003:i:3:p:879-907.
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    More about this item

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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