On Modelling the Natural Rate of Unemployment with Indivisible Labour

Jeremy Greenwood and Gregory Huffman

Canadian Journal of Economics, 1988, vol. 21, issue 3, 587-609

Abstract: This analysis investigates modeling the natural rate of unemployment in settings wh ere labor's utilization has some lumpy aspect to it. Specifically, th e introduction of various nonconvexities into tastes and technology l ead to unemployment in general equilibrium. Equilibria can emerge whe re (1) those currently unemployed have higher probabilities of being unemployed in the future than those currently employed; (2) some agen ts are jobless while others work overtime; and (3) seniority rules se emingly arise whereby old workers cannot be laid off so long as eithe r new workers are being hired or some workers are doing overtime. The relative welfare levels of employed and unemployed agents are analyz ed.

Date: 1988
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