Please use this identifier to cite or link to this item:
Felbermayr, Gabriel
Prat, Julien
Year of Publication: 
Series/Report no.: 
IZA Discussion Papers 2754
This paper analyzes the effect of Product Market Regulation (PMR) on unemployment in a search model with heterogeneous multiple-worker firms. In our setup, PMR modifies the distribution of firm productivities, thereby affecting the equilibrium rate of unemployment. We distinguish between PMR related to entry costs and PMR that generates recurrent fixed costs. We find that: (i) higher entry costs raise the rate of unemployment mainly through our novel selection effect, (ii) higher fixed costs lower unemployment through the selection effect and increase it through the competition effect analyzed in Blanchard and Giavazzi (2003). We propose econometric evidence consistent with the unemployment effects of sunk versus recurring costs.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
337.88 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.