A new model of equilibrium involuntary unemployment

Summary. 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 Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the undercutting firm out of both markets. Full employment equilibria are payoff dominated by unemployment equilibria, and the arguments are robust to decreasing returns.Received: 21 May 2001, Revised: 15 April 2003, JEL Classification Numbers: D43, E24.Correspondence to: Leo KaasWe thank an anonymous referee, Woojin Lee, Klaus Ritzberger and seminar participants in Konstanz, Manchester, Milan, Prague, Vienna, and Warwick for helpful comments. Financial support from the Economic and Social Research Council (UK) under grant L138251030 and from the Manchester School Visiting Fellowship Scheme is gratefully acknowledged.     

A Schumpeterian model of equilibrium unemployment and labor turnover

This paper constructs a general equilibrium model of equilibrium unemployment by combining an endogenous growth model with a variant of equilibrium search theory. The analysis offers two explanations for the causes of widening wage gap between skilled and less-skilled labor, and rising unemployment rate among the less skilled: technological change in the form of an increase in the size of innovations or skilled labor saving technological change in R&D activity. In addition, the model identifies two distinct effects of faster technological progress on the aggregate unemployment rate. First, it increases the rate of labor turnover and therefore increases the aggregate unemployment rate – the creative destruction effect. Second, it creates R&D jobs, which offer workers complete job security, and consequently reduces the aggregate unemployment rate – the resource reallocation effect.     

Involuntary unemployment,macroeconomic policy,and a behavioral model of the firm: Why high real wages need not cause high unemployment

The perspective of modern macroeconomic theory, be it new classical or old and new Keynesian, is that unemployment can be reduced only if real wages are cut. The modern Keynesians, basing themselves upon the microfoundations of efficiency wage theory, argue that real wages cannot and will not be cut by firms for efficiency wage reasons. This generates involuntary unemployment based on a market coordination problem. A behavioral model that contrasts with efficiency wage theory is presented here which suggests that reducing real wages need not affect the marginal cost of labor and, therefore, the number of individuals employed. In the behavioral model, wherein there exists some linearity in the relationship between real wages and working conditions and labor productivity, a lower real wage rate is not a necessary condition for reducing the unemployment rate nor is a higher real wage an obstacle to reducing it. In this scenario, unemployment, to the extent that it is demand-side induced, is not related to movements in real wages. Therefore, restoring full employment after a negative demand shock becomes a matter for demand management, not demand management that must be coordinated with measures designed to reduce real wages.     

Financial constraints and unemployment equilibrium

The aim of this paper is to show that a robust determination of unemployment equilibria can be based on the integration of credit rationing into a general equilibrium model. We first review some of the Keynesian macroeconomic models. We show that the problems bequeathed by Keynes’ legacy are only partially solved by the strand of the new Keynesian economics based on market imperfections and endogenous rigidities. In order to overcome these problems we refer to credit rationing. In particular, we build a simple general equilibrium model in which prices are–in principle–perfectly flexible and credit rationing implies unemployment equilibria.     

Optimal inventories and equilibrium price behavior

This paper departs from the established tradition of equilibrium inventory theory by examining the relationship between inventories and market prices when production is instantaneous but distribution is costly. Inventory holdings are not buffer stocks and do not facilitate production smoothing; rather, production variability exceeds the variability of final sales. Voluntary holdings of marketable finished goods are not restricted to occasional “speculation” during periods of unexpectedly low demand, but may persist even when capital losses are anticipated. In these respects, the paper reconciles important features of the inventory decision problem with the results of modern investment theory.     

Monopolistic equilibrium and involuntary unemployment

This note provides a simple example of an economy in which involuntary unemployment may be the consequence of monopolistic behavior on the product market.     

Involuntary unemployment: the missing piece in Keynes's General Theory *

Using a retrospective methodology, my paper examines critically the insights on involuntary unemployment offered by Keynes in his General Theory. Keynes, it is argued, gave involuntary unemployment a modern micro-founded definition yet — quite opportunely, in view of the difficulty of the task—did not attempt to provide a direct microeconomic explanation of it Rather, his claim to the demonstration of its existence rests on an indirect argument, where involuntary unemployment emerges at the corollary of effective demand falling short of its full employment level. This justification is based on the more or less tacit assumption that involuntary unemployment and effective demand-deficiency are equivalent. This claim of equivalence, it will be argued, is wanting. Hence the view that involuntary unemployment may have been demonstrated through the proxy of demand-deficiency falls. My paper evaluates whether Keynes's other arguments in favour of involuntary unemployment are robust. Several alternative interpretations of his General TheoryChapter Two ‘fundamental observation’, focusing respectively on money illusion, adjustment flaws, and resistance to cuts in nominal wages, are discussed. Here also the verdict will be negative. The general conclusion then follows that no solid explanation for the existence of involuntary unemployment is to be found in theGeneral Theory.     

Self-fulfilling expectations,history, and big push: A search equilibrium model of unemployment

We set up a search equilibrium model with general matching technologies to study the phenomenon of large-scale and persistent unemployment. Our emphasis is on dynamics. We find, in addition to self-fulfilling expectations, history or initial level of employment plays a nonnegligible role for selecting the equilibrium converging to the steady state with large unemployment. We also discuss some policy implications. We propose a method similar to the idea of big push in economic development for the economy trapped in the state of large unemployment to escape from it.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

Democracy and competition: Vertical differentiation and labor in a general equilibrium model

We consider a general equilibrium model with vertical preferences and one or two firms, where workers and consumers are differentiated, respectively, by their sensitivity to effort and their preference for quality. The question in this paper is whether a decentralized choice through majority vote would lead to more or less competition. We compare the duopoly and the monopoly cases from the viewpoint of each individual, then we deduce the choice of the majority. We prove that, under concentrated ownership (where owners have a null density), duopoly is always preferred by the majority; while under egalitarian ownership (where firms are equally shared by all the population), the choice of the majority depends on the relative size of workers' and consumers' segments.     

Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labor is mobile between a traded good sector and the non-traded good sector and unskilled labor is specific to another traded good sector. Capital is perfectly mobile among all these three sectors. We introduce involuntary unemployment equilibrium in both the labor markets and explain unemployment using efficiency wage hypothesis. We examine the effects of change in different factor endowments and prices of traded goods on the unemployment rates and on the skilled-unskilled relative wage. Also, we introduce Gini-Coefficient of wage income distribution as a measure of wage income inequality; and show that a comparative static effect may force the skilled-unskilled relative wage and the Gini-Coefficient of wage income distribution to move in opposite directions in the presence of unemployment.     

Keynesian unemployment as a nash equilibrium with endogenous wage/price setting: An example

A simple 3 good, 1 consumer, 1 firm model of fixed price, quantity constrained equilibrium is developed. A game is then defined on the set of (globally unique) equilibria. The consumer sets the money wage, the firm sets the money price of output (money is numeraire). Nash solutions of the game exist and may involve Keynesian unemployment but never involve Classical unemployment or Repressed inflation.     

Involuntary Unemployment: An Expository Note

This note is an effort to view the research program of Brecher and his co-workers to deploy tax incentives against involuntary unemployment in the broader context; on both the equity-efficiency trade-off in political economy, and the dual economic structure in the theoretic foundations of market equilibrium.     

Benefits and unemployment in an open economy: an equilibrium analysis

This paper examines the relation between uemployment compensation and unemployment in The Netherlands. This relation is studied by menas of a small macroeconomic model for an open economy that assumes equilibrium in the labour market and on the current account. The model yields an elasticity of unemployment to benefits of 1.0, which is high compared to microeconomic research and the outcomes of disequilibrium models for The Netherlands. According to the model, a rise in the ‘wedge’ (i.e. the difference betweenn real labour cost and real net wages) leads to an increase in unemployment, whilst shifting this wedge from the employers to the employees induces a fall in unemployment.     

马克思失业理论与西方主流失业理论:当代中国失业问题的解读

当代中国日益严重的失业问题引起理论界的众说纷纭.西方主流失业理论与马克思失业理论相比,后者对解读当代中国的失业问题具有根本性、基础性的现实指导意义.根据马克思失业理论,资本积累仍是当代中国失业问题的根源.然而发展中的中国,既要发挥资本积累的优越性,又要让失业者适当分享资本积累的成果,并尽快提高其素质和能力,成为具有全球竞争力的新型劳动者,以此,才能解决当代中国的失业问题.