Abstract
In this paper, we employ general equilibrium reasoning to review whether product market reforms could help to reduce unemployment in Europe. We consider three potential effects of product market reforms: lowering markups, fostering productivity gains and inducing a more rapid expansion of the product mix. We argue that product market reforms will help to reduce unemployment under most circumstances. Productivity improvements will increase aggregate unemployment only if workers are immobile and unemployment is concentrated in a few sectors. Employment effects remain positive or are even reinforced if wage adjustments occur. Using recent industry studies, we suggest that product market reforms can reduce unemployment significantly, but labor market reforms remain unavoidable nevertheless. Copyright 2000 by WWZ and Helbing & Lichtenhahn Verlag AG
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