The Impact of Product Market Competition on Employment and Wages
Standard economic wisdom generally stresses the benefits of increased competition on the product market. This paper proposes a model of monopolistic competition with an endogenous determination of workers flows in and out of unemployment, where wages are determined according to an efficiency wage mechanism. We show that an increase in product market competition boosts the hiring rate as well as the separation rate. Hence, the efficiency wage schedule compatible with more competition shifts upward. An adverse effect on workers’ incentive is at work which pushes real wages up to the point that increased competition may indeed generate employment losses rather than gains.
|Date of creation:||Mar 2001|
|Date of revision:|
|Publication status:||published in: Oxford Economic Papers, 2004, 56 (4), 667-686|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
- Díaz-Vázquez, María del Pilar & Snower, Dennis J., 1996. "Employment, Macroeconomic Fluctuations and Job Security," CEPR Discussion Papers 1430, C.E.P.R. Discussion Papers.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000.
"Regulation And Labour Market Performance,"
CEPR Discussion Papers
2420, C.E.P.R. Discussion Papers.
- Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
- repec:oup:qjecon:v:105:y:1990:i:3:p:699-726 is not listed on IDEAS
- Dennis J. Snower & David T. Coe, 1996.
"Policy Complementarities: The Case for Fundamental Labor Market Reform,"
IMF Working Papers
96/93, International Monetary Fund.
- David T. Coe & Dennis J. Snower, 1997. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 1-35, March.
- David Coe & Dennis Snower, 1996. "Policy Complementarities: The Case for Fundamental Labor Market Reform," Archive Discussion Papers 9625, Birkbeck, Department of Economics, Mathematics & Statistics.
- Coe, David T & Snower, Dennis J., 1997. "Policy Complementarities: The Case for Fundamental Labour Market Reform," CEPR Discussion Papers 1585, C.E.P.R. Discussion Papers.
- Giuseppe Bertola & Richard Rogerson, 1996.
"Institutions and Labor Reallocation,"
NBER Working Papers
5828, National Bureau of Economic Research, Inc.
- Stephen Nickell & D. Nicolitsas, 1994.
LSE Research Online Documents on Economics
51644, London School of Economics and Political Science, LSE Library.
- Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
- Nickell, S & Vainiomaki, J & Wadhwani, S, 1994. "Wages and Product Market Power," Economica, London School of Economics and Political Science, vol. 61(244), pages 457-73, November.
- repec:oup:qjecon:v:105:y:1990:i:2:p:255-83 is not listed on IDEAS
- Bertola, Giuseppe & Ichino, Andrea, 1995. "Wage Inequality and Unemployment: US vs Europe," CEPR Discussion Papers 1186, C.E.P.R. Discussion Papers.
- Burda, Michael & Wyplosz, Charles, 1994.
"Gross worker and job flows in Europe,"
European Economic Review,
Elsevier, vol. 38(6), pages 1287-1315, June.
- Lebow, David E, 1992. "Imperfect Competition and Business Cycles: An Empirical Investigation," Economic Inquiry, Western Economic Association International, vol. 30(1), pages 177-93, January.
- Michael Burda, 2000. "Product Market Regulation and Labor Market Outcomes: How can Deregulation Create Jobs?," CESifo Working Paper Series 230, CESifo Group Munich.
- Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
- Gersbach, Hans, 2000. "Promoting Product Market Competition to Reduce Unemployment in Europe: An Alternative Approach?," Kyklos, Wiley Blackwell, vol. 53(2), pages 117-33.
- Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
- Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Hans Gersbach, 1999. "Product market competition, unemployment and income disparities," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(2), pages 221-240, June.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp276. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.