Product market competition and unemployment: a county-level analysis

Abstract

By using a competition measure derived from the textual analysis of firms’ 10-K filings, we examine the relationship between product market competition and the county-level unemployment. We find that unemployment is negatively related to product market competition pressure and the result is robust in additional tests. We also find that this relationship is strengthened in a good economy. Our findings are consistent with the previous theoretical prediction that competition can reduce unemployment. This article provides new evidence on the interactions between product markets and the labour market.

Keywords:

• unemployment
• product market competition
• labour market
• cross-county analysis

JEL Classification:

• J64
• J23
• L11
• D43

Notes

¹ We thank Feng Li for the generous contribution of data to our research.

² This database compiles the monthly household Current Population Survey on private and public sector labour union membership and its coverage. This database is available at www.unionstats.com

³ The group of low economic growth consists of observations for the years 2001, 2002, 2007, 2008 and 2009, when the annual GDP growth rates are lower than 4.5%. The rest belongs to the group of high economic growth. According to NBER, there are two recession periods throughout our sample period: March 2001 to November 2001 and December 2007 to June 2009. We get similar results using the alternative classification.