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Product Market Deregulation and the U.S. Employment Miracle

Listed author(s):
  • Ebell, Monique

    (Department of Economics and Business Studies, Humboldt University of Berlin, and Centre for Economic Performance, London School of Economics and Political Science)

  • Haefke, Christian

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria, and Instituto de Análisis Económico, CSIC)

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 directly 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://www.ihs.ac.at/publications/eco/es-223.pdf
File Function: First version, 2008
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 223.

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Length: 39 pages
Date of creation: May 2008
Handle: RePEc:ihs:ihsesp:223
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