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Product Market Regulation, Firm Selection and Unemployment

Author

Listed:
  • Julien Prat

    (Vienna University)

  • Gabriel Felbermayr

    (Tuebingen University)

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 firms' startup costs and PMR that generates recurrent fixed costs. The latter type of PMR decreases the rate of unemployment through our novel selection effect, while they increase it through the conventional competition effect. In contrast, higher startup costs always raise the rate of unemployment. We propose econometric evidence consistent with the unemployment effect of sunk versus recurring PMR-induced costs.

Suggested Citation

  • Julien Prat & Gabriel Felbermayr, 2007. "Product Market Regulation, Firm Selection and Unemployment," 2007 Meeting Papers 667, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:667
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O00 - Economic Development, Innovation, Technological Change, and Growth - - General - - - General

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