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Is Perfection Optimal? Employment and product market competition

Author

Listed:
  • Bruno Amable

  • Donatella Gatti

    (CEPN - Centre d'Economie de l'Université Paris Nord - Université Sorbonne Paris Nord)

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

Suggested Citation

  • Bruno Amable & Donatella Gatti, 2002. "Is Perfection Optimal? Employment and product market competition," Post-Print hal-04019689, HAL.
    • Handle: RePEc:hal:journl:hal-04019689
    DOI: 10.1007/978-1-4757-3598-7
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    Cited by:

    1. is not listed on IDEAS
    2. Zhiqi Chen & Bo Zhao, 2014. "Unemployment and product market competition in a Cournot model with efficiency wages," Canadian Journal of Economics, Canadian Economics Association, vol. 47(2), pages 555-579, May.

    More about this item

    JEL classification:

    • 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
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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