Barriers to Entry and the Labor Market

Andrea Colciago () and Marco Membretti ()
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Andrea Colciago: De Nederlandsche Bank and University of Milano Bicocca
Marco Membretti: University of Pavia

No 222, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: We study the labor market effects of Temporary Barriers to Entry (TBEs). Estimates 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 employment 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.

Keywords: Job Creation; Reallocation; Unemployment; Heterogeneous firms; BVAR. (search for similar items in EconPapers)
JEL-codes: C13 E32 (search for similar items in EconPapers)
Pages: 49
Date: 2024-07
New Economics Papers: this item is included in nep-com, nep-dge and nep-ent
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