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Equilibrium Involuntary Unemployment under Oligempory

Author

Listed:
  • Kaas, Leo

    (Department of Economics and Finance, Institute for Advanced Studies)

  • Madden, Paul

    (School of Economic Studies, Manchester University)

Abstract

We show that equilibrium involuntary unemployment emerges in a multi-stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect equilibria involving unemployment. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the low wage firm out of both markets. Full employment equilibria may also exist, but only the involuntary unemployment equilibria are robust to decreasing returns.

Suggested Citation

  • Kaas, Leo & Madden, Paul, 1999. "Equilibrium Involuntary Unemployment under Oligempory," Economics Series 68, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:68
    as

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    File URL: https://irihs.ihs.ac.at/id/eprint/1283
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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