Demand Uncertainty, Mismatch and (Un)Employment: A Microeconomic Approach

Mohamed Jellal (), Jacques Thisse and Yves Zenou

No 1914, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We consider a finite number of firms, which compete imperfectly for heterogeneous workers. Firms produce a homogeneous good, sold on a competitive market, and face demand-induced price fluctuations. It is then shown that unemployment may arise in equilibrium because of both uncertainty of product demand and job mismatch. Unemployment does not arise, however, when the variance of the demand shock is small enough and/or the cost of mismatch is sufficiently low. Full employment always prevails when there is free entry. Hence, unemployment may persist as long as the incumbent firms choose their skill requirements to protect their supranormal profits.

Keywords: Demand Shock; job matching; Unemployment; workers' and firms' heterogeneity (search for similar items in EconPapers)
JEL-codes: I28 J41 L13 (search for similar items in EconPapers)
Date: 1998-07
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