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Product market deregulation and the U.S. employment miracle
Ebell, Monique; Haefke, Christian
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matchingmodel 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.
Business Economics and Industrial Organization
Macroeconomics and International Economics
product market competition
barriers to entry
wage bargaining
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