The Employment (and Output) of Nations: Theory and Policy Implications
AbstractI study the effects of product and labor market frictions in a dynamic general equilibrium model with a three-states representation of the labor market. Firms bargain with unions over wages and employment levels. This generates unemployment. Households take the associated unemployment risk as given in making participation and consumption-saving decisions. Unemployment harms output because it inserts a wedge between labor supply (participation) and employment. New firms make entry decisions based on expected future profitability as determined by macroeconomic conditions. The model produces dynamics consistent with the long-run trends exhibited by the US and EU15 economies over the last 40-50 years. It also features feedback mechanisms linking the two markets that amplify the adverse effects on output of labor and product market frictions. These multiplier effects have interesting policy implications.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 10-20.
Date of creation: 2010
Date of revision:
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Product Market; Labor Market; Market Structure; Employment; Unemployment;
Other versions of this item:
- Petro Peretto, 2006. "The Employment (and Output) of Nations: Theory and Policy Implications," 2006 Meeting Papers 280, Society for Economic Dynamics.
- Pietro F. Peretto, 2006. "The Employment (and Output) of Nations: Theory and Policy Implications," DEGIT Conference Papers c011_014, DEGIT, Dynamics, Economic Growth, and International Trade.
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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CEPREMAP Working Papers (Couverture Orange)
- 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.
- Michael K. Salemi, 2007. "Long-run and Cyclic Movements in the Unemployment Rate in Hong Kong: A Dynamic, General Equilibrium Approach," Working Papers 192007, Hong Kong Institute for Monetary Research.
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