DEREGULATION SHOCK IN PRODUCT MARKET AND UNEMPLOYMENT

Luisito Bertinelli, Olivier Cardi and Partha Sen
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Partha Sen: Department of Economics, Delhi School of Economics, Delhi, India

No 221, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: In a dynamic general equilibrium model with endogenous markups and labor market frictions, we investigate the e®ects of increased product market competition. Unlike most macroeconomic models of search, we endogenize the labor supply along the extensive mar- gin. We ¯nd 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 ¯xed 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 una®ected in the long-run. The sensitivity analysis reveals that product market deregulation is more e®ective in countries where labor market regulation is high, product markets are initially highly regulated, unemployment bene¯ts are smaller and labor force is more responsive.

Keywords: Imperfect competition; Endogenous markup; Search theory; Unemployment; Deregulation. (search for similar items in EconPapers)
JEL-codes: E24 J63 L16 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2012-11
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Deregulation shock in product market and unemployment (2013)
Working Paper: Deregulation shock in product market and unemployment (2012)
Working Paper: Deregulation shock in product market and unemployment (2011)
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