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The Distributive and Welfare Effects of Product and Labour Market Deregulation

  • Gabriele CARDULLO

    (UNIVERSITY OF GENOA, DIEM)

This paper studies the effects of product and labour market deregulation on wage inequality and welfare. By constructing an analytically tractable model in which the level of product market competition and the wages are endogenously distributed, I show that even though deregulation in labour markets raises the aggregate level of employment and the average real wage, the welfare of trade unions may decrease in sectors with a low level of competition. Moreover, removing barriers to entry in the goods market has mixed effects on inequality : the wage variance and the Gini index are lower, but the ratio of the highest over the lowest wage paid in the economy increases. Finally, an interesting result of the model concerns the wage density function. By parameterizing the rates of firms creation and destruction on the basis of Belgian data, the resulting shape of the wage distribution exhibits an empirically accurate form, unimodal and positively skewed.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009007.

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Length: 37
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:ctl:louvir:2009007
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  13. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
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  15. Fiori, Giuseppe & Nicoletti, Giuseppe & Scarpetta, Stefano & Schiantarelli, Fabio, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," IZA Discussion Papers 2770, Institute for the Study of Labor (IZA).
  16. David Card & Thomas Lemieux & W. Craig Riddell, 2004. "Unions and Wage Inequality," Journal of Labor Research, Transaction Publishers, vol. 25(4), pages 519-562, October.
  17. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  18. Griffith, Rachel & Harrison, Rupert & Macartney, Gareth, 2006. "Product Market Reforms, Labour Market Institutions and Unemployment," CEPR Discussion Papers 5599, C.E.P.R. Discussion Papers.
  19. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 7-50, 04.
  20. Ellen Brock & Sabien Dobbelaere, 2003. "Has International Trade Affected Workers?Bargaining Power?," LICOS Discussion Papers 13603, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
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  23. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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  25. Michael Waldman, 1991. "The Role of Multiple Potential Entrants/Sequential Entry in Noncooperative Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 446-453, Autumn.
  26. Parent, Daniel, 2000. "Industry-Specific Capital and the Wage Profile: Evidence from the National Longitudinal Survey of Youth and the Panel Study of Income Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 306-23, April.
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