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Learning of General Equilibrium Effects and the Unemployment Trap

Author

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  • Gersbach, Hans

    () (ETH Zurich)

  • Schniewind, Achim

    () (Heidelberg University)

Abstract

We examine wage bargaining when employers and labor unions do not always take all general equilibrium effects into account but learn a steady state. If agents do hardly consider general equilibrium effects, low real wages and low unemployment results. With an intermediate view, when partial equilibrium effects are taken into account, high real wages and unemployment results, which may explain the persistence of high unemployment in Europe. If all general equilibrium effects are incorporated at once, again low real wages and low unemployment results. We thus obtain a hump-shaped relationship between the extend of feedback effects incorporated by the bargaining parties and real wages or unemployment.

Suggested Citation

  • Gersbach, Hans & Schniewind, Achim, 2001. "Learning of General Equilibrium Effects and the Unemployment Trap," IZA Discussion Papers 254, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp254
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    Cited by:

    1. Gilles Saint-Paul, 2004. "Why are European Countries Diverging in their Unemployment Experience?," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 49-68, Fall.
    2. Gersbach, Hans & Schniewind, Achim, 2008. "Imperfect competition, general equilibrium and unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1381-1398, May.
    3. Gersbach, Hans & Schniewind, Achim, 2001. "Awareness of General Equilibrium Effects and Unemployment," IZA Discussion Papers 394, Institute for the Study of Labor (IZA).
    4. Winkelmann, Rainer, 2001. "Why Do Firms Recruit Internationally? Results from the IZA International Employer Survey 2000," IZA Discussion Papers 331, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Labor markets; wage bargaining; learning of general equilibrium effects; unemployment;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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