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Competitive Wage Cycles with Imperfect Output Market Competition

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  • L Kaas
  • P Madden
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Abstract

We consider a model of a sector in which the same set of oligopolistic firms faces a common labour supply constraint. The wage is given in the short run, adjusting competitively in the longer run. When the costs of job creation are low relative to the degree of output market power, there exists no wage that clears the labour market in the short run, and at some wages there are two equilibria, one with involuntary unemployment and one with unfilled vacancies. The competitive wage dynamics produces a cycle with persistent labour market disequilibrium and recurrent periods of involuntary unemployment.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr19.pdf
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Bibliographic Info

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 19.

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Length: 22 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:man:cgbcrp:19

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Keywords: involuntary unemployment; imperfect competition; mulitple equilibria;

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  1. Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc.
  2. Daniel E. Sichel, 1989. "Business cycle asymmetry: a deeper look," Working Paper Series / Economic Activity Section 93, Board of Governors of the Federal Reserve System (U.S.).
  3. Dixon, H. & Rankin, N., 1991. "Imperfect Competition and Macroeconomics: a Survey," The Warwick Economics Research Paper Series (TWERPS) 387, University of Warwick, Department of Economics.
  4. Kaas, Leo & Madden, Paul, 1999. "Equilibrium Involuntary Unemployment under Oligempory," Economics Series 68, Institute for Advanced Studies.
  5. Dehez, Pierre, 1985. "Monopolistic equilibrium and involuntary unemployment," Journal of Economic Theory, Elsevier, vol. 36(1), pages 160-165, June.
  6. Kaas, Leo, 1998. "Multiplicity of Cournot Equilibria and Involuntary Unemployment," Journal of Economic Theory, Elsevier, vol. 80(2), pages 332-349, June.
  7. Parent, Daniel, 2000. "Industry-Specific Capital and the Wage Profile: Evidence from the National Longitudinal Survey of Youth and the Panel Study of Income Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 306-23, April.
  8. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  9. Silvestre, J., 1988. "There May Be Unemployment When The Labor Market Is Competitive And The Output Market Is Not," Papers 316, California Davis - Institute of Governmental Affairs.
  10. Lasselle, Laurence & Svizzero, Serge, 2001. "The Impossibility of Underemployment with More Than One Product Market," Oxford Economic Papers, Oxford University Press, vol. 53(1), pages 157-65, January.
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