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On involuntary unemployment: notes on efficiency-wage competition

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  • Guerrazzi, Marco

Abstract

This paper introduces a model of efficiency-wage competition along the lines put forward by Hahn (1987). Specifically, I analyse a two-firm economy in which employers screen their workforce by means of increasing wage offers competing one another for high-quality employees. The main results are the following. First, using a specification of effort such that the problem of firms is concave, optimal wage offers are strategic complements. Second, a symmetric Nash equilibrium can be locally stable under the assumption that firms adjust their wage offers in the direction of increasing profits by conjecturing that any wage offer above (below) equilibrium will lead competitors to underbid (overbid) such an offer. Finally, the exploration of possible labour market equilibria reveals that effort is counter-cyclical.

Suggested Citation

  • Guerrazzi, Marco, 2012. "On involuntary unemployment: notes on efficiency-wage competition," MPRA Paper 38140, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38140
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    References listed on IDEAS

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    Cited by:

    1. Guerrazzi, Marco, 2012. "Asymptotic relations in Cournot's game," MPRA Paper 42761, University Library of Munich, Germany.

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    More about this item

    Keywords

    Efficiency-Wages; Wage Competition; Nash Equilibria; Effort;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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