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Oxford Economic Papers Advance Access originally published online on June 19, 2008
Oxford Economic Papers 2009 61(3):517-537; doi:10.1093/oep/gpn019
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© Oxford University Press 2008 All rights reserved

Dynamic effects of regulation and deregulation in goods and labour markets

Pasquale Commendatore* and Ingrid Kubin{dagger}

*Dipartimento di Teoria Economica e Applicazioni, Università di Napoli ‘Federico II’, Via Rodinò 22, I-80138 Napoli, Italy; e-mail: commenda{at}unina.it
{dagger}Vienna University of Economics and Business Administration

JEL classifications: E10, E24, E32


  Abstract

It has been argued in recent economic literature that deregulation in both product and labour markets has beneficial impacts on employment and on real wages. The results offered to support this argument, however, are controversial. So far the debate has been concerned with comparative static results. This paper reassesses the consequences of deregulation in a dynamic context. In our model—a dynamic counterpart of Blanchard and Giavazzi's prototype model—liberalisation in product and/or labour markets also increases the equilibrium employment and wage rates. However, with boundedly rational firms and trade unions, deregulation may generate endogenous fluctuations.


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