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Efficiency-wage competition: What happens as the number of players increases?

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  • Guerrazzi, Marco

Abstract

In this paper, I explore the consequences of extending the number of firms in an efficiency-wage competition framework. In this setting, I show that the effort function shape is crucial in determining key features of the model economy. Specifically, with a concave (sigmoid) effort function, the wage and the employment levels prevailing in a symmetric Nash equilibrium are, respectively, lower (higher) and higher (lower), the higher the number of competing firms. Moreover, assuming that firms adjust their wages on the basis of lagged wage bids, the adoption of a concave (sigmoid) effort function reveals that the symmetric Nash equilibrium is unstable (stable) and the speed of divergence (convergence) is an increasing function of the number of firms. Furthermore, with a concave (sigmoid) effort function the full employment equilibrium is characterized by a monopsonistic exploitation of labour that increases (decreases) with the number of productive units required to sustain that allocation. Those findings have intriguing implications for the existence of involuntary unemployment as well as for policies aimed at increasing employment.

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  • Guerrazzi, Marco, 2017. "Efficiency-wage competition: What happens as the number of players increases?," MPRA Paper 77950, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:77950
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    More about this item

    Keywords

    Efficiency-wage competition; Number of competitors; Effort function; Nash equilibrium; Monopsonistic exploitation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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

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