 Market Power, Growth and UnemploymentNo 98-16, Working Papers from Duke University, Department of Economics Abstract: The modern view of the labor market holds that unemployment is high in economies where unions are strong and the government and other institutions impose on firms obligations that raise the cost of labor. This view is generally correct and yields a clear policy implication: more competition in the labor market reduces unemployment. This simple prescription has been challenged on the grounds that liberalizing the labor market alone cannot solve the unemployment problem when there are frictions in the product and capital markets that limit the economy's ability to create jobs through entrepreneurship. According to this view, competition in the product market is as important as competition in the labor market for keeping unemployment low. Unemployment in Europe, for example, is higher than in the US because both the labor and the product markets are less competitive. I argue that this view is correct in pointing out that explanations that locate the source of unemployment exclusively in the labor market ignore several factors that operate in the product market that are, in fact, crucial. I show, however, that its main conclusion is wrong: labor market reforms that reduce the cost of labor have effects in the product market that JEL-codes: E10 L16 O31 O40 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:98-16 Access Statistics for this paper More papers in Working Papers from Duke University, Department of Economics Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097. |
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