Equilibrium Involuntary Unemployment under Oligempory

Leo Kaas () and Paul Madden
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Paul Madden: School of Economic Studies, Manchester University

No 68, Economics Series from Institute for Advanced Studies

Abstract: We show that equilibrium involuntary unemployment emerges in a multi-stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect equilibria involving unemployment. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the low wage firm out of both markets. Full employment equilibria may also exist, but only the involuntary unemployment equilibria are robust to decreasing returns.

Keywords: Involuntary unemployment; Multi-stage game; Imperfect competition (search for similar items in EconPapers)
JEL-codes: D43 E24 (search for similar items in EconPapers)
Date: 1999-06
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http://www.ihs.ac.at/publications/eco/es-68.pdf First version, 1999 (application/pdf)

Related works:
Working Paper: Equilibrium Involuntary Unemployment Under Oligempory (2002)
Working Paper: Equilibrium Involuntary Unemployment under Oligempory (2002)
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