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The Impact of Product Market Competition on Employment and Wages

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  • Amable, Bruno

    (Paris School of Economics)

  • Gatti, Donatella

    (University of Paris 13)

Abstract

Standard economic wisdom generally stresses the benefits of increased competition on the product market. This paper proposes a model of monopolistic competition with an endogenous determination of workers flows in and out of unemployment, where wages are determined according to an efficiency wage mechanism. We show that an increase in product market competition boosts the hiring rate as well as the separation rate. Hence, the efficiency wage schedule compatible with more competition shifts upward. An adverse effect on workers’ incentive is at work which pushes real wages up to the point that increased competition may indeed generate employment losses rather than gains.

Suggested Citation

  • Amable, Bruno & Gatti, Donatella, 2001. "The Impact of Product Market Competition on Employment and Wages," IZA Discussion Papers 276, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp276
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    References listed on IDEAS

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    Citations

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    Cited by:

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    2. Moretti, Laura, 2014. "Inflation targeting and product market deregulation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 372-386.
    3. Bruno Amable & Pascal Petit, 2003. "The diversity of social systems of innovation and production during the 1990s," Chapters, in: Jean-Philippe Touffut (ed.), Institutions, Innovation and Growth, chapter 8, Edward Elgar Publishing.
    4. Hans Gersbach, 2004. "Structural Reforms and the Macroeconomy: The Role of General Equilibrium Effects," International Economic Association Series, in: Robert M. Solow (ed.), Structural Reform and Economic Policy, chapter 2, pages 9-22, Palgrave Macmillan.
    5. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    6. Céline Piton, 2022. "The labour market performance of vulnerable groups: towards a better understanding of the main driving forces," ULB Institutional Repository 2013/352519, ULB -- Universite Libre de Bruxelles.
    7. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," Boston College Working Papers in Economics 663, Boston College Department of Economics, revised 08 Aug 2008.
    8. Piton Céline & Rycx François, 2019. "Unemployment Impact of Product and Labor Market Regulation: Evidence from European Countries," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-32, June.
    9. Jo Seldeslachts, 2002. "Interactions Between Product and Labour Market Reforms," UFAE and IAE Working Papers 519.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    10. Kohns, Stephan, 2001. "Testing for Asymmetry in British, German and US Unemployment Data," IZA Discussion Papers 341, Institute of Labor Economics (IZA).
    11. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print halshs-00120584, HAL.
    12. Paul Frijters & Michael A. Shields, 2010. "Are Early Educational Choices Affected by Unemployment Benefits? New Theory," Discussion Papers Series 447, School of Economics, University of Queensland, Australia.
    13. Céline Piton, 2018. "The unemployment impact of product and labour market regulation: Evidence from European countries," Working Paper Research 343, National Bank of Belgium.
    14. Céline Piton, 2018. "The unemployment impact of product and labour market regulation: Evidence from European countries," Working Paper Research 343, National Bank of Belgium.

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    More about this item

    Keywords

    efficiency wage; imperfect competition; Unemployment;
    All these keywords.

    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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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