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

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  • Xavier Wauthy
  • Yves Zenou

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.

Suggested Citation

  • Xavier Wauthy & Yves Zenou, 2002. "How Does Imperfect Competition in the Labor Market Affect Unemployment Policies?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(3), pages 417-436, July.
    • Handle: RePEc:bla:jpbect:v:4:y:2002:i:3:p:417-436
    DOI: 10.1111/1467-9779.00106
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    1. Jellal, Mohamed & Thisse, Jacques-Francois & Zenou, Yves, 2005. "Demand uncertainty, mismatch and (un)employment," Economics Letters, Elsevier, vol. 88(1), pages 33-39, July.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Decembrie.
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    Cited by:

    1. Kjell Erik Lommerud & Bjørn Sandvik & Odd Rune Straume, 2004. "Good Jobs, Bad Jobs and Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 703-720, December.
    2. Mohamed Jellal & Francois-Charles Wolff, 2003. "Dual Labor Markets And Strategic Efficiency Wage," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 99-112.
    3. Tasnadi, Attila, 2005. "A way of explaining unemployment through a wage-setting game," Labour Economics, Elsevier, vol. 12(2), pages 191-203, April.

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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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