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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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File URL: http://eprints.lse.ac.uk/19569/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19569.

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Length: 48 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:ehl:lserod:19569
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