Barriers to Entry and the Labor Market

Andrea Colciago and Marco Membretti

Working Papers from DNB

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.

Keywords: Job Creation; Reallocation; Unemployment; Heterogeneous firms; BVAR (search for similar items in EconPapers)
JEL-codes: C13 E32 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-dge and nep-ent
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:813

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