c is the consumption of commodity i by consumer j

Transcription

1 Blanchard, O. and F. Gavazz Macroeconomc Effects of Regulaton and Deregulaton n Goods and Labour markets, Quarterly Journal of Economcs: Man message: lberalsng roduct markets may be renforced by lberalsng labour market. The lnk between the two markets s rovded by rent sharng between monoolstc frms and local unons rces exceed roducton costs, and wages exceed the reservaton wage. Key ngredents: reference of varety from the consumers (horzontal dfferentaton). Each consumer wshes to consume (n equal arts gven the symmetry of the model) any knd of commodtes avalable. Ths creates for each varety a local market where a frm s locally monoolstc. Utlty functon of consumer j V σ σ j c j m / σ m where m s the total number of varetes, j c s the consumton of commodty by consumer j and σ s the elastcty of substtuton between two varetes of commodtes.

2 The otmal market demand for commodty s where M n j M j C M σ σ m s the total ncome of all consumers and s the rce ndex. roducton technology neglects catal and assumes constant returns to scale Y N where Y s the total roducton of commodty and rofts are defned as N s emloyment n frm/sector. Therefore π Y w N ( w ) N thus a frm makes ostve rofts f t s able to set rces hgher than labour cost. 2

3 n each frm there s a unon, whch bargans over wage and emloyment (so called effcent barganng). The Nash soluton of a barganng roblem requres the maxmsaton of the jont roduct of the gans wth resect to the outsde oton: a unon can gan a wage hgher than the reservaton wage, a frm can make ostve rofts. For a worker the outsde oton s beng unemloyed, whch entals obtanng the reservaton wage w f u, whch s decreasng functon of the unemloyment rate u. ( ) The barganng roblem mles max w, N [ ( )] β [ ( )] β ( ( )) β N w w N w max N w f u ( w ) β w, N where β s the barganng ower of the unon. The otmal solutons are N Y arg max w Y ( ) ( β) f ( u) w β + whch mles that both unons and frms have a common nterest to set the (otmal) level of roducton/emloyment that maxmse frms roft. In addton wages are set through roft sharng (the wage s a weghted average between the maxmum wage and the reservaton wage). 3

4 The model s solved n three stes: short-run artal equlbrum: the number of frms s gven; each frm sets ts rce takng rce level and unemloyment for gven, and smlarly does the corresondng unon wth the wage short-run general equlbrum: the number of frms s gven; snce all frms are dentcal, they all set the same rce, and all the unons set the same wage rce level and aggregate unemloyment are unquely determned long-run general equlbrum: free entry n the market determnes the maxmum number of frms whch s comatble wth non-negatve rofts. SHORT-RUN PARTIAL EQUILIBRIUM. We assume equlbrum n the commodty market: M C Y σ σ m and therefore frm s rofts are then defned as M π ( w ) σ σ m Increasng the rce reduces the demand (and therefore roducton/emloyment) but ncreases the roft er unt of roducton. 4

5 The otmal rce rule becomes σ f µ σ ( u) ( + ) f ( u) The frm sets the rce as a mark-u over the mnmum cost of roducton, whch corresonds to the reservaton wage of the worker. The mark-u margn µ s a measure of the market σ ower of the frms, and declnes wth the ncrease n the degree of substtutablty between commodtes (whch can me thought as a roxy measure for the degree of cometton exstng n the market). We could make t more recse by assumng that cometton ncreases when there s a greater varety of roducts ( ) ( ) µ m µ m σ Gven the rce behavour of the frm, we obtan the barganed wage + ( β) f ( u) β( + µ ) f ( u) + ( β) f ( u) ( + ) f ( u) w β + βµ 5

6 In short-run artal equlbrum therefore the man conclusons are µ, w w µ, β Both frms and unons refer low cometton, because ths roduces greater rofts, and as a consequence hgher wages n each sector, frms and unons suort rotectonst olces. ( + ) f ( u) w βµ ( + ) f ( u) µ otmal rce otmal wage w f ( u) reservaton wage margnal revenue roduct demand 6

7 SHORT-RUN GENERAL EQUILIBRIUM. All frms are dentcal they set the same rce. As a consequence the level of roducton s unquely determned, and therefore the unemloyment rate becomes (negatve) functon of the exstng level of cometton. ( ) ( ) ( ) ( ) ( ) ( ( ) + µ f u + µ f u f u u u µ u µ m + µ + Now the unon s objectve s modfed, because unons realse that hgher rces (whch beneft the workers due to hgher wages) translates n lower unemloyment. In facts the otmal wage becomes w + βµ + µ w µ, β + At the aggregate level the unons refer more cometton, n order to obtan hgher emloyment. 7

8 LONG-RUN GENERAL EQUILIBRIUM. There s a cost of entrance c and frms enter the market u to the ont where rofts vanshes. By equatng rofts er frm to the entrance cost we get π w w + βµ + µ + µ βµ + µ ( β) µ + µ c Snce µ deends on the number of frms, the revous equaton sets the maxmum number of frms that are admssble n the market m m c, β A decrease n unons ower β rases the er-frm rofts, thus admttng a larger number of frms. In addton from f ( u) we get w u u c, β. Fnally c. + µ + + As a consequence, unons should suort labour market lberalsaton, because t wll rase unemloyment n the long run. They also should be n favour of roduct market lberalsaton, due to the ostve effect on both unemloyment and wages. 8