IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Deregulation shock in product market and unemployment

  • Luisito Bertinelli

    ()

    (University of Luxembourg CREA)

  • Olivier Cardi

    ()

    (University Pantheon-Assas ERMES and Ecole Polytechnique)

  • Partha Sen

    ()

    (Delhi School of Economics)

In a dynamic general equilibrium model with endogenous markups and labor market frictions, we investigate the effects of increased product market competition. Unlike most macroeconomic models of search, we endogenize the labor supply along the extensive mar- gin. We find numerically that a model with endogenous labor force participation decision produces a decline in the unemployment rate which is almost three times larger than that in a model with fixed labor force. For a calibration capturing alternatively European and the U.S. labor markets, a deregulation episode, which lowers the markup by 3 percent- age points, results in a fall in the unemployment rate by 0.17 and 0.07 percentage point, respectively, while the labor share is almost unaffected in the long-run. The sensitivity analysis reveals that product market deregulation is more effective in countries where labor market regulation is high, product markets are initially highly regulated, unemployment benefits are smaller and labor force is more responsive.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://wwwfr.uni.lu/content/download/52257/626725/file/2012-04%20-%20Deregulation%20shock%20in%20product%20market%20and%20unemployment.pdf
Download Restriction: no

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 12-04.

as
in new window

Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:luc:wpaper:12-04
Contact details of provider: Postal: 162a avenue de la Faïencerie, L-1511 Luxembourg
Phone: (+352) 46 66 44
Fax: (+352) 46 66 44 ext 633
Web page: http://wwwen.uni.lu/research/fdef/crea
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Sachiko Kuroda & Isamu Yamamoto, 2007. "Estimating Frisch Labor Supply Elasticity in Japan," IMES Discussion Paper Series 07-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
  2. Giulia Faggio & Stephen Nickell, 2006. "Patterns of work across the OECD," LSE Research Online Documents on Economics 19853, London School of Economics and Political Science, LSE Library.
  3. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  4. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects Of Regulation And Deregulation In Goods And Labor Markets," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 879-907, August.
  5. Bilbiie, Florin O. & Ghironi, Fabio & Melitz, Marc J., 2012. "Endogenous Entry, Product Variety, and Business Cycles," Scholarly Articles 10914281, Harvard University Department of Economics.
  6. Marianne Bertrand & Francis Kramarz, 2002. "Does Entry Regulation Hinder Job Creation? Evidence From The French Retail Industry," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1369-1413, November.
  7. Riccardo Fiorito & Giulio Zanella, . "Labor Supply Elasticities: Can Micro be Misleading for Macro?," Working Papers 4, Department of the Treasury, Ministry of the Economy and of Finance.
  8. Koeniger, Winfried & Prat, Julien, 2006. "Employment Protection, Product Market Regulation and Firm Selection," IZA Discussion Papers 1960, Institute for the Study of Labor (IZA).
  9. Monique Ebell & Christian Haefke, 2002. "Product market deregulation and the U.S. employment miracle," Economics Working Papers 930, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2006.
  10. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports 298, Federal Reserve Bank of New York.
  11. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
  12. Ben Heijdra & Jenny Ligthart, 2009. "Labor tax reform, unemployment, and search," International Tax and Public Finance, Springer, vol. 16(1), pages 82-104, February.
  13. Christopher J. Nekarda & Valerie A. Ramey, 2010. "Industry evidence on the effects of government spending," Finance and Economics Discussion Series 2010-28, Board of Governors of the Federal Reserve System (U.S.).
  14. Zeno Enders & Gernot J. Müller, 2010. "Has the Euro changed the Business Cycle?," Working Papers 162, Oesterreichische Nationalbank (Austrian Central Bank).
  15. Julien Prat & Gabriel Felbermayr, 2007. "Product Market Regulation, Firm Selection and Unemployment," 2007 Meeting Papers 667, Society for Economic Dynamics.
  16. Barnichon, Regis, 2012. "Vacancy posting, job separation and unemployment fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 315-330.
  17. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  18. Engelbert Dockner & Gustav Feichtinger, 1991. "On the optimality of limit cycles in dynamic economic systems," Journal of Economics, Springer, vol. 53(1), pages 31-50, February.
  19. Michael Reiter & Christian Haefke, 2012. "What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?," 2012 Meeting Papers 594, Society for Economic Dynamics.
  20. Spector, David, 2002. "Competiton and the capital-labor conflict," CEPREMAP Working Papers (Couverture Orange) 0207, CEPREMAP.
  21. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2012. "Employment Effects of Product and Labour Market Reforms: Are There Synergies?," Economic Journal, Royal Economic Society, vol. 122(558), pages F79-F104, 02.
  22. Gali, Jordi, 1995. "Product diversity, endogenous markups, and development traps," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 39-63, August.
  23. Griffith, Rachel & Harrison, Rupert & Macartney, Gareth, 2006. "Product Market Reforms, Labour Market Institutions and Unemployment," CEPR Discussion Papers 5599, C.E.P.R. Discussion Papers.
  24. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  25. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  26. Shi, Shouyong & Wen, Quan, 1999. "Labor market search and the dynamic effects of taxes and subsidies," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 457-495, April.
  27. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  28. Wu, Yangru & Zhang, Junxi, 2000. "Endogenous markups and the effects of income taxation:: Theory and evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 77(3), pages 383-406, September.
  29. Herve Boulhol, 2010. "Pro-competitive Effect of Trade and Non-decreasing Price-Cost Margins," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(3), pages 326-356, 06.
  30. Christopher J. Nekarda & Valerie A. Ramey, 2013. "The Cyclical Behavior of the Price-Cost Markup," NBER Working Papers 19099, National Bureau of Economic Research, Inc.
  31. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE models for monetary policy analysis," CQER Working Paper 2010-02, Federal Reserve Bank of Atlanta.
  32. Feldmann, Horst, 2009. "Business regulation, labor force participation and employment in industrial countries," Journal of Economics and Business, Elsevier, vol. 61(3), pages 238-260.
  33. Christian Haefke & Michael Reiter, 2006. "Endogenous Labor Market Participation and the Business Cycle," Computing in Economics and Finance 2006 383, Society for Computational Economics.
  34. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  35. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  36. Nir Jaimovich, 2004. "Firm Dynamics, Markup Variations, and the Business Cycle," Discussion Papers 07-013, Stanford Institute for Economic Policy Research, revised Mar 2007.
  37. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
  38. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  39. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Product Market Reforms and Employment in OECD Countries," OECD Economics Department Working Papers 472, OECD Publishing.
  40. Bipasa Datta & Huw Dixon, 2002. "Technological Change, Entry, and Stock-Market Dynamics: An Analysis of Transition in a Monopolistic Industry," American Economic Review, American Economic Association, vol. 92(2), pages 231-235, May.
  41. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
  42. Paul Conway & Donato de Rosa & Giuseppe Nicoletti & Faye Steiner, 2006. "Regulation, Competition and Productivity Convergence," OECD Economics Department Working Papers 509, OECD Publishing.
  43. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  44. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:luc:wpaper:12-04. 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: (Elisa Ferreira)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.