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Competitive Wage Cycles with Imperfect Output Market Competition

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  • L Kaas
  • P Madden

Abstract

We consider a model of a sector in which the same set of oligopolistic firms faces a common labour supply constraint. The wage is given in the short run, adjusting competitively in the longer run. When the costs of job creation are low relative to the degree of output market power, there exists no wage that clears the labour market in the short run, and at some wages there are two equilibria, one with involuntary unemployment and one with unfilled vacancies. The competitive wage dynamics produces a cycle with persistent labour market disequilibrium and recurrent periods of involuntary unemployment.

Suggested Citation

  • L Kaas & P Madden, 2002. "Competitive Wage Cycles with Imperfect Output Market Competition," Centre for Growth and Business Cycle Research Discussion Paper Series 19, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:19
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, September.
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    4. Silvestre, Joaquim, 1990. "There May Be Unemployment When the Labour Market Is Competitive and the Output Market Is Not," Economic Journal, Royal Economic Society, vol. 100(402), pages 899-913, September.
    5. Dehez, Pierre, 1985. "Monopolistic equilibrium and involuntary unemployment," Journal of Economic Theory, Elsevier, vol. 36(1), pages 160-165, June.
    6. Lasselle, Laurence & Svizzero, Serge, 2001. "The Impossibility of Underemployment with More Than One Product Market," Oxford Economic Papers, Oxford University Press, vol. 53(1), pages 157-165, January.
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