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Product Market Deregulation and the U.S. Employment Miracle

  • Monique Ebell
  • Christian Haefke

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 bargaining. 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. Under a traditional calibration, our results suggest that 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. Under a small surplus calibration, however, product market deregulation can account for the entire decline in US trend unemployment over the 1980's and 1990's.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0874.

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Date of creation: Jun 2008
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Handle: RePEc:cep:cepdps:dp0874
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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