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Demand Shifts, Labour Mobility and Unemployment Persistence

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  • Kurt Kratena

Abstract

In this study a two sector general equilibrium model with fully integrated labour and goods markets is presented. The two labour markets are segmented and represent two different "labour market regimes". The primary sector is an unionized high wage sector with "good" and rationed jobs, in the secondary sector the wage rate is given by a competitive labour market with "bad" jobs. Mobility between the two sectors takes place as in the Harris-Todaro model of migration depending on expected wage income in a sector. Goods demand depends on real household (workers) income and on relative prices given by unit costs. A simulation experiment shows that an ex ante aggregate neutral demand shift from the secondary to the primary sector might have a positive impact on aggregate unemployment, while a demand shift from the primary to the secondary sector could have a negative impact.

Suggested Citation

  • Kurt Kratena, 2000. "Demand Shifts, Labour Mobility and Unemployment Persistence," WIFO Working Papers 128, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2000:i:128
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    File URL: https://www.wifo.ac.at/wwa/pubid/19142
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