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Barriers to Entry and the Labor Market

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  • Andrea Colciago
  • Marco Membretti

Abstract

We study the labor market effects of Temporary Barriers to Entry (TBEs). Esti- mates from a mixed-frequency Bayesian VAR show that TBEs: (i) reduce job creation by new entrants, but boost it for incumbent firms; (ii) persistently increase employ- ment concentration in large firms; (iii) temporarily reduce unemployment, but are recessionary in the long run; and (iv) mainly result from federal regulation. We build a macroeconomic model, featuring firm heterogeneity, endogenous entry and exit, and labor market frictions, which successfully reproduces the VAR evidence. The model shows that TBEs temporarily boost short-run economic activity by favoring existing firms, but are ultimately costly. Policy measures aimed at protecting incumbent firms, even if temporary, entail welfare costs.

Suggested Citation

  • Andrea Colciago & Marco Membretti, 2024. "Barriers to Entry and the Labor Market," Working Papers 813, DNB.
    • Handle: RePEc:dnb:dnbwpp:813
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    References listed on IDEAS

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    More about this item

    Keywords

    Job Creation; Reallocation; Unemployment; Heterogeneous firms; BVAR;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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