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How Does Imperfect Competition in the Labor Market Affect Unemployment Policies?

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  • Wauthy, Xavier
  • Zenou, Yves

Abstract

We consider a continuum of workers ranked according to their abilities to acquire education and two firms with different technologies that imperfectly compete in wages to attract these workers. The education cost to be borne by workers is higher in the high-technology firm. In equilibrium, we show that the unemployed workers are those with the lowest initial abilities. We then study different policies that subsidize either education cost or wages. We found that the first-best allocation can only be implemented by selective policies. We analyze second-best nonselective policies and show that, in terms of welfare, subsidizing education costs or wages is strictly equivalent. Copyright 2002 by Blackwell Publishing Inc.

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 4 (2002)
Issue (Month): 3 ()
Pages: 417-36

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Handle: RePEc:bla:jpbect:v:4:y:2002:i:3:p:417-36

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  1. Jellal, Mohamed & Thisse, Jacques-Francois & Zenou, Yves, 2005. "Demand uncertainty, mismatch and (un)employment," Economics Letters, Elsevier, Elsevier, vol. 89(2), pages 248-254, November.
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Cited by:
  1. Lommerud, Kjell Erik & Bj¯rn Sandvik & Odd Rune Straume, 2002. "Good jobs, bad jobs and redistribution," Royal Economic Society Annual Conference 2002, Royal Economic Society 131, Royal Economic Society.
  2. Tasnadi, Attila, 2005. "A way of explaining unemployment through a wage-setting game," Labour Economics, Elsevier, Elsevier, vol. 12(2), pages 191-203, April.
  3. Mohamed Jellal & Francois-Charles Wolff, 2003. "Dual Labor Markets And Strategic Efficiency Wage," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(3), pages 99-112.

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