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Author: | Felbermayr, G. Prat, J. |
Title: | Product market regulation, firm selection and unemployment |
Journal: | Journal of the European Economic Association
2011 : APR, VOL. 9:2 p. 278-317 |
Index terms: | unemployment markets management science econometrics competition industries |
Language: | eng |
Abstract: | This paper considers the effect of product market regulation (PMR) on unemployment in a search model containing heterogeneous multiple-worker firms. In our setup, PMR varies the distribution of firm productivity, affecting the equilibrium unemployment rate. We differentiate between PMR related to entry costs and PMR generating recurrent fixed costs. The finding are: (i) higher entry costs raise the unemployment rate mainly through our novel selection effect, (ii) higher fixed costs decrease unemployment through the selection effect, but also increase it through the competition effect discussed in (2003, Quarterly Journal of Economics, 118, 879-907). Company heterogeneity magnifies the effect of both types of regulatory costs. We show econometric evidence consistent with the unemployment effects of sunk versus recurring costs. |
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