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Product Market Deregulation and the U.S. Employment Miracle

  • Ebell, Monique

    ()

    (Humboldt University Berlin)

  • Haefke, Christian

    ()

    (New York University, Abu Dhabi)

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 wage bargaining. Product market competition affects unemployment by two channels: the output expansion effect and a countervailing effect due to a hiring externality. Competition is then linked to barriers to entry. 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. Our quantitative analysis suggests that under individual bargaining, 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.

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File URL: http://ftp.iza.org/dp1946.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1946.

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Length: 41 pages
Date of creation: Jan 2006
Date of revision:
Publication status: published in: Review of Economic Dynamics, 2009, 12, 479 - 504.
Handle: RePEc:iza:izadps:dp1946
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