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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.

Suggested Citation

  • Monique Ebell & Christian Haefke, 2003. "Product Market Deregulation and the U.S. Employment Miracle," Working Papers 250, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:250
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    References listed on IDEAS

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    More about this item

    Keywords

    Product market competition; barriers to entry; wage bargaining;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O00 - Economic Development, Innovation, Technological Change, and Growth - - General - - - General

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