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Competitive Wage Cycles with Imperfect Output Market Competition

  • L Kaas
  • P Madden
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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.

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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0212.

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Date of creation: 2002
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Handle: RePEc:man:sespap:0212
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Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/

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  1. Schultz, Christian, 1992. "The impossibility of involuntary unemployment in an overlapping generations model with rational expectations," Journal of Economic Theory, Elsevier, vol. 58(1), pages 61-76, October.
  2. Dehez, Pierre, 1985. "Monopolistic equilibrium and involuntary unemployment," Journal of Economic Theory, Elsevier, vol. 36(1), pages 160-165, June.
  3. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  4. Silvestre, J., 1988. "There May Be Unemployment When The Labor Market Is Competitive And The Output Market Is Not," Papers 316, California Davis - Institute of Governmental Affairs.
  5. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
  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 157-65, January.
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