July 2003

IZA DP No. 833: Structural Reforms and the Macroeconomy: The Role of General Equilibrium Effects

published in: R. Solow (ed.), Macroeconomics and Structural Reform, Palgrave 2004

We examine the macroeconomic consequences of industry wage bargaining and product market reforms. We suggest that general equilibrium effects may be important for the evaluation of industry-specific regulations. In particular, we suggest that the European unemployment problem can be traced back partially to insufficient recognition of general equilibrium effects. Moreover, unawareness of general equilibrium effects may be an explanation of why regulations are introduced and why structural reforms are (not) undertaken.