We consider the dynamic relationship between product market entry regulation
and equilibrium unemployment. The main theoretical contribution is combining
a Mortensen-Pissarides model with monopolistic competition in the goods market
and individual wage bargaining. Product market competition affects unemployment
via two channels: the output expansion effect and a countervailing effect due
to a hiring externality. Competition is then linked to barriers to entry. A
calibrated model compares a high-regulation ...
We consider the dynamic relationship between product market entry regulation
and equilibrium unemployment. The main theoretical contribution is combining
a Mortensen-Pissarides model with monopolistic competition in the goods market
and individual wage bargaining. Product market competition affects unemployment
via two channels: the output expansion effect and a countervailing effect due
to a hiring externality. Competition is then linked to barriers to entry. A
calibrated model compares a high-regulation European regime to a low-regulation
Anglo-American one. Our quantitative analysis suggests that under individual
bargaining, no more than half a percentage point of European unemployment rates
can be attributed to entry regulation.
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