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Learning of General Equilibrium Effects and the Unemployment Trap

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Author Info

  • Gersbach, Hans

    ()
    (ETH Zurich)

  • Schniewind, Achim

    ()
    (Heidelberg University)

Abstract

We examine wage bargaining when employers and labor unions do not always take all general equilibrium effects into account but learn a steady state. If agents do hardly consider general equilibrium effects, low real wages and low unemployment results. With an intermediate view, when partial equilibrium effects are taken into account, high real wages and unemployment results, which may explain the persistence of high unemployment in Europe. If all general equilibrium effects are incorporated at once, again low real wages and low unemployment results. We thus obtain a hump-shaped relationship between the extend of feedback effects incorporated by the bargaining parties and real wages or unemployment.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 254.

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Length: 35 pages
Date of creation: Feb 2001
Date of revision:
Handle: RePEc:iza:izadps:dp254

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Related research

Keywords: Labor markets; wage bargaining; learning of general equilibrium effects; unemployment;

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Cited by:
  1. Saint-Paul, Gilles, 2004. "Why are European Countries Diverging in their Unemployment Experience?," CEPR Discussion Papers 4328, C.E.P.R. Discussion Papers.
  2. Gersbach, Hans & Schniewind, Achim, 2005. "Awareness of General Equilibrium Effects and Unemployment," CEPR Discussion Papers 5012, C.E.P.R. Discussion Papers.
  3. Hans Gersbach & Achim Schniewind, 1999. "Imperfect Competition, General Equilibrium and Unemployment," CESifo Working Paper Series 224, CESifo Group Munich.
  4. Rainer Winkelmann, 2002. "Why do firms recruit internationally? Result from the IZA International Employer Survey 2000," SOI - Working Papers 0202, Socioeconomic Institute - University of Zurich.

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