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The Distributive and Welfare Effects of Product and Labour Market Deregulation

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  • Gabriele CARDULLO

    (UNIVERSITY OF GENOA, DIEM)

Abstract

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.

Suggested Citation

  • Gabriele CARDULLO, 2009. "The Distributive and Welfare Effects of Product and Labour Market Deregulation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2009007
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    More about this item

    Keywords

    Product market competition; wage distribution; barriers to entry;

    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
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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