Is perfection optimal? Employment and product market competition

Bruno Amable and Donatella Gatti

No FS I 00-304, Discussion Papers, Research Unit: Economic Change and Employment from WZB Berlin Social Science Center

Abstract: This paper proposes a model of efficiency wage with endogenous workers flows in interaction with imperfect competition on the product markets. Subject to economy-wide shocks, firms hire and fire workers thus generating a certain turnover. We show that the intensity of this turnover negatively affects workers' incentives and induces higher efficiency wage premia. Increased competition pushes real wages up but effort incentive requirements prevent large wage adjustments. Hence, adjustments are made with quantities: both the separation and hiring rates increase with competition, increasing the wage premium and contributing to lower employment. As a consequence, an employmentmaximising level of competition may exist.

Keywords: unemployment; efficiency wage; imperfect competition (search for similar items in EconPapers)
JEL-codes: E24 J41 J63 L13 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Is Perfection Optimal? Employment and Product Market Competition (2005)
Working Paper: Is Perfection Optimal? Employment and product market competition (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbece:fsi00304

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