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Chapter 19 Market Power, Growth, and Unemployment

In: Economic Growth and Development

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  • Pietro F. Peretto

Abstract

I present a model where firms and workers set wages above the market-clearing level. Unemployment is thus generated by their exercise of market power. Because both the labor and product markets are imperfectly competitive, market power in the labor market interacts with market power in the product market. This interaction sheds new light on the effects of policy interventions on unemployment and growth. For example, labor market reforms that reduce labor costs reduce unemployment and boost growth because they expand the scale of the economy and generate more competition in the product market.

Suggested Citation

  • Pietro F. Peretto, 2011. "Chapter 19 Market Power, Growth, and Unemployment," Frontiers of Economics and Globalization, in: Economic Growth and Development, pages 493-525, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-8715(2011)0000011024
    DOI: 10.1108/S1574-8715(2011)0000011024
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