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Awareness of General Equilibrium Effects and Unemployment

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  • Gersbach, Hans
  • Schniewind, Achim

Abstract

We examine wage bargaining in a two-sector economy when the employers and labour unions in each sector are not always aware of all the general equilibrium feedback effects. We show analytically that if agents only consider labour demand effects, low real wages and low unemployment are the result. With an intermediate view, i.e. when partial equilibrium effects within a sector are taken into account, high real wages and unemployment result. If all general equilibrium effects are simultaneously considered, we once again obtain a situation of low wages and unemployment. The assumption that unions and employers' federations are unable to incorporate all feedback effects from other sectors may explain why unemployment in Europe is high.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5012.

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Date of creation: Apr 2005
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Handle: RePEc:cpr:ceprdp:5012

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Keywords: awareness of general equilibirum effects; sectoral wage bargaining; unemployment;

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References

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  1. Manzini, Paola, 1998. " Game Theoretic Models of Wage Bargaining," Journal of Economic Surveys, Wiley Blackwell, vol. 12(1), pages 1-41, February.
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  5. Gersbach, Hans & Schniewind, Achim, 2001. "Learning of General Equilibrium Effects and the Unemployment Trap," IZA Discussion Papers 254, Institute for the Study of Labor (IZA).
  6. Ours, J.C. van & Nickell, S.J., 2000. "The Netherlands and the United Kingdom: A European unemployment miracle?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84119, Tilburg University.
  7. Burda, Michael C & Wyplosz, Charles, 1993. "Gross Worker and Job Flows in Europe," CEPR Discussion Papers 868, C.E.P.R. Discussion Papers.
  8. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
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  10. 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.
  11. Saint-Paul, Gilles, 1994. "Some Political Aspects of Unemployment," CEPR Discussion Papers 949, C.E.P.R. Discussion Papers.
  12. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
  13. Saint-Paul, Gilles, 1997. "The Rise and Persistence of Rigidities," CEPR Discussion Papers 1571, C.E.P.R. Discussion Papers.
  14. Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier.
  15. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
  16. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
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  18. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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Citations

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Cited by:
  1. Hans Gersbach & Achim Schniewind, 1999. "Imperfect Competition, General Equilibrium and Unemployment," CESifo Working Paper Series 224, CESifo Group Munich.
  2. Saint-Paul, Gilles, 2005. "Making Sense of Bolkestein-Bashing: Trade Liberalization Under Segmented Labour Markets," CEPR Discussion Papers 5100, C.E.P.R. Discussion Papers.
  3. Schettkat, Ronald & Yocarini, Lara, 2001. "Education Driving the Rise in Dutch Female Employment: Explanations for the Increase in Part-time Work and Female Employment in the Netherlands, Contrasted with Germany," IZA Discussion Papers 407, Institute for the Study of Labor (IZA).
  4. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2004. "Labour Market Reform in Europe," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 49-60, October.

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