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 model of time allocation. Product market regulations affect market work in effectively the same fashion as labor or consumption taxes. For product market regulations to affect aggregate market work, the key
driving force is the size of income transfers associated with the regulations, and the key propagation mechanism is the labor supply elasticity. We show that industry level analysis is of little help in assessing
the aggregate effects of product market regulation. (JEL E24, J22, L51)
Fang, Lei, and Richard Rogerson.
"Product Market Regulation and Market Work: A Benchmark Analysis."
American Economic Journal: Macroeconomics,
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
Time Allocation and Labor Supply
Economics of Regulation