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Demand uncertainty, mismatch and (un)employment

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  • Jellal, Mohamed
  • Thisse, Jacques-Francois
  • Zenou, Yves

Abstract

We consider a finite number of firms which compete imperfectly for heterogenous workers. Firms produce a homogeneous good sold on a competitive market and face demand-induced price fluc- tuations. It is then shown that unemployment may arise in equilibrium because of uncertainty on product demand and job mismatch. However, unemployment does not arise when the vari- ance of the demand shock is small enough and/or the cost of mismatch is sufficiently low. Full employment always prevails when there is free entry. Hence, unemployment may persist as long as the incumbent firms choose their skill requirements to protect their supranormal profits.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 88 (2005)
Issue (Month): 1 (July)
Pages: 33-39

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Handle: RePEc:eee:ecolet:v:88:y:2005:i:1:p:33-39

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Web page: http://www.elsevier.com/locate/ecolet

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References

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  1. Hamilton, Jonathan & Thisse, Jacques-François & Zenou, Yves, 1999. "Wage Competition with Heterogeneous Workers and Firms," CEPR Discussion Papers 2141, C.E.P.R. Discussion Papers.
  2. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
  3. Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series 481, Research Institute of Industrial Economics.
  4. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  5. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
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Cited by:
  1. Laurence Rioux, 2000. "Human Capital, Local Labor Markets and Regional Interaction," Econometric Society World Congress 2000 Contributed Papers 1740, Econometric Society.
  2. Wauthy, Xavier & Zenou, Yves, 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 417-36.
  3. Elias Oikarinen, 2009. "Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki," Discussion Papers 53, Aboa Centre for Economics.
  4. Jellal, Mohamed & Zenou, Yves, 1999. "Efficiency wages and the quality of job matching," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 201-217, June.
  5. Jellal, Mohamed, 2012. "Maroc éducation et emploi une analyse théorique
    [Morocco education and employment a theory]    ," MPRA Paper 38465, University Library of Munich, Germany.

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