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CEP discussion paper
Product Market Deregulation and the U.S. Employment Miracle
Monique Ebell and Christian Haefke
June 2008
Paper No' CEPDP0874:
Full Paper (pdf)

JEL Classification: E24; J63; L16; O00

Tags: product market competition; barriers to entry; wage bargaining

We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual bargaining. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980's and 1990's could be attributed to product market deregulation. Under a traditional calibration, our results suggest that a decrease of less than two-tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount. Under a small surplus calibration, however, product market deregulation can account for the entire decline in US trend unemployment over the 1980's and 1990's.