Abstract for CGBCR Discussion Paper 19
‘Competitive Wage Cycles with Imperfect Output Market Competition’
Leo Kaas and Paul Madden
October 2002, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 19. Download PDF file (311KB).
We consider a model of a sector in which the same set of oligopolistic firms faces a common labour supply constraint. The wage is given in the short run, adjusting competitively in the longer run. When the costs of job creation are low relative to the degree of output market power, there exists no wage that clears the labour market in the short run, and at some wages there are two equilibria, one with involuntary unemployment and one with unfilled vacancies. The competitive wage dynamics produces a cycle with persistent labour market disequilibrium and recurrent periods of involuntary unemployment.