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Is Perfection Optimal? Employment and Product Market Competition

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  • Bruno Amable

    (PSE)

  • Donatella Gatti

    (PSE & IZA)

Abstract

This paper proposes a model of efficiency wage with endogenous workers flows in interaction with imperfect competition on the product markets. Subject to economy-wide shocks, firms hire and fire workers thus generating a certain turnover. We show that the intensity of this turnover negatively affects workers’ incentives and induces higher efficiency wage premia. Increased competition pushes real wages up but effort incentive requirements prevent large wage adjustments. Hence, adjustments are made with quantities: both the separation and hiring rates increase with competition, increasing the wage premium and contributing to lower employment. As a consequence, an employmentmaximising level of competition may exist. -- In der Analyse wird ein Effizienzlohn-Modell vorgeschlagen, das endogene Beschäftigten-Ströme mit unvollständigem Wettbewerb auf den Gütermärkten verbindet. Unternehmen reagieren auf volkswirtschaftliche Schocks mit „Heuern und Feuern“ und verstärken so den Umschlag an Beschäftigten. Es wird gezeigt, dass sich das Ausmaß dieses Beschäftigten-Umschlags negativ auf die Anreize für die Arbeitnehmer auswirkt und zu höheren Effizienzlohn-Prämien führt. Ein intensivierter Wettbewerb lässt Reallöhne steigen, aber Anreize zur Steigerung der Arbeitsintensität verhindern Lohnanpassungen im großen Stil. Demzufolge kommt es zu Mengenanpassungen: sowohl Entlassungs- wie Einstellungszahlen wachsen mit zunehmendem Wettbewerb, wodurch die Lohnprämie steigt und die Beschäftigung sinkt. Daraus ist zu folgern, dass es einen beschäftigungsmaximalen Grad des Wettbewerbs geben könnte.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0507008.

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Date of creation: 08 Jul 2005
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Handle: RePEc:wpa:wuwpma:0507008

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  1. Richard Layard & Stephen Nickell, 1992. "Unemployment in the OECD Countries," CEP Discussion Papers dp0081, Centre for Economic Performance, LSE.
  2. Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics.
  3. bertola, G. & Rogerson, R., 1996. "Institutions and Labor Reallocation," Papers 272, Banca Italia - Servizio di Studi.
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  13. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  14. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
  15. Gersbach, Hans, 2000. "Promoting Product Market Competition to Reduce Unemployment in Europe: An Alternative Approach?," Kyklos, Wiley Blackwell, vol. 53(2), pages 117-33.
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Cited by:
  1. Zhiqi Chen & Bo Zhao, 2010. "Unemployment and Product Market Competition in a Cournot Model with Efficiency Wage," Carleton Economic Papers 10-04, Carleton University, Department of Economics.

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