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On Artificial Structural Unemployment

  • Maciej K. Dudek

    (SzkoÅ‚a GÅ)

  • ówna Handlowa

    (Narodowy Bank Polski)

Above market clearing wages are shown to prevail as an outcome of a game in which employers possess and employees lack the ability to coordinate. It is established in a monopolistically competitive framework that it may be optimal for individual firms to coordinate and restrict entry of indirect competitors and thus increase profits by paying above market clearing wages as the higher wage bill need not outweigh the increase in profits due to entry restriction. Resulting unemployment is shown to be socially costly. The paper notes that a tax on revenue of the incumbent firms can be welfare improving

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 171.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:171
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