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Product Market Regulation and Market Work: A Benchmark Analysis

  • Lei Fang
  • Richard Rogerson

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation. We find that product market regulations affect time devoted to market work in effectively the same fashion as do taxes on labor income or consumption. In particular, if product market regulations are to affect aggregate market work in this model the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two sector model that industry level analysis is of little help in assessing the aggregate effects of product market regulation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12891.

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Date of creation: Feb 2007
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Publication status: published as Fang, Lei and Richard Rogerson. "Product Market Regulation and Market Work: A Benchmark Analysis." American Economic Journal: Macroeconomics 3, 2 (April 2011): 163-88.
Handle: RePEc:nbr:nberwo:12891
Note: EFG LS
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  1. Paloma Lopez-Garcia, 2003. "Labour Market Performance and Start-up Costs: OECD Evidence," CESifo Working Paper Series 849, CESifo Group Munich.
  2. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
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  10. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," SSE/EFI Working Paper Series in Economics and Finance 560, Stockholm School of Economics.
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  16. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  17. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2005. "Work and Leisure in the U. S. and Europe: Why so Different?," Harvard Institute of Economic Research Working Papers 2068, Harvard - Institute of Economic Research.
  18. Christian Haefke & Monique Ebell, 2004. "The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle," 2004 Meeting Papers 759, Society for Economic Dynamics.
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