Product Market Regulation, Firm Selection and Unemployment

Gabriel Felbermayr and Julien Prat

No 2754, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes the effect of Product Market Regulation (PMR) on unemployment in a search model with heterogeneous multiple-worker firms. In our setup, PMR modifies the distribution of firm productivities, thereby affecting the equilibrium rate of unemployment. We distinguish between PMR related to entry costs and PMR that generates recurrent fixed costs. We find that: (i) higher entry costs raise the rate of unemployment mainly through our novel selection effect, (ii) higher fixed costs lower unemployment through the selection effect and increase it through the competition effect analyzed in Blanchard and Giavazzi (2003). We propose econometric evidence consistent with the unemployment effects of sunk versus recurring costs.

Keywords: search model; unemployment; product market regulation; firms heterogeneity (search for similar items in EconPapers)
JEL-codes: E24 J63 L16 O00 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2007-04
New Economics Papers: this item is included in nep-ltv, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Published - published in: Journal of the European Economic Association, 2011, 9 (2), 278-318

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Related works:
Journal Article: PRODUCT MARKET REGULATION, FIRM SELECTION, AND UNEMPLOYMENT (2011)
Working Paper: Product market regulation, Firm Selection, and Unemployment (2011)
Working Paper: Product Market Regulation, Firm Selection and Unemployment (2007)
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