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Externalities in Wage Formation and Structural Unemployment

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  • David De La Croix

Abstract

A sectorial general equilibrium model in which externalities among sectors arise through wage envy is presented. Without externalities, equilibrium unemployment is only a function of the product market power of the firm and of demand uncertainty. With externalities, unemployment is higher. It is increasing with union power even though bargaining is efficient. Aggregate demand shock do not modify the magnitude of unemployment. However, when externalities are present, sectorial demand shocks modify the allocation of output across sectors; this reallocation may increase or decrease unemployment depending on the initial situation of the economy.

Suggested Citation

  • David De La Croix, 1993. "Externalities in Wage Formation and Structural Unemployment," Annals of Economics and Statistics, GENES, issue 32, pages 17-41.
    • Handle: RePEc:adr:anecst:y:1993:i:32:p:17-41
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    File URL: http://www.jstor.org/stable/20075924
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    Cited by:

    1. de la Croix, David, 1994. "Wage Interdependence through Decentralized Bargaining," Journal of Economic Surveys, Wiley Blackwell, vol. 8(4), pages 371-403, December.

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