Product market competition, job security, and aggregate employment
Standard economic wisdom generally stresses the benefits of increased competition on the product market. This paper proposes a model of monopolistic competition with an endogenous determination of workers flows in and out of unemployment, where wages are determined according to an efficiency wage mechanism. We show that an increase in product market competition boosts the hiring rate as well as the separation rate thus reducing job security. Hence, the efficiency wage schedule compatible with more competition shifts upward. An adverse effect on workers' incentive is at work which pushes real wages up to the point that increased competition may indeed generate employment losses rather than gains. Copyright 2004, Oxford University Press.
Volume (Year): 56 (2004)
Issue (Month): 4 (October)
|Contact details of provider:|| Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK|
Fax: 01865 267 985
Web page: http://oep.oupjournals.org/
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:oxecpp:v:56:y:2004:i:4:p:667-686. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.