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Product Market Regulation and Market Work: A Benchmark Analysis

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  • Lei Fang
  • Richard Rogerson

Abstract

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation. We find that product market regulations affect time devoted to market work in effectively the same fashion as do taxes on labor income or consumption. In particular, if product market regulations are to affect aggregate market work in this model the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two sector model that industry level analysis is of little help in assessing the aggregate effects of product market regulation.

Suggested Citation

  • Lei Fang & Richard Rogerson, 2007. "Product Market Regulation and Market Work: A Benchmark Analysis," NBER Working Papers 12891, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12891
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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