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Title:Equilibrium Unemployment and Investment Under Product and Labour Market Imperfections PDF Logo
Authors:Kauppi, Heikki
Koskela, Erkki
Stenbacka, Rune
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1058
Abstract:We study the implications of product market competition and investment for price setting, wage bargaining and thereby for equilibrium unemployment in an economy with product and labour market imperfections. We show that intensified product market competition will reduce equilibrium unemployment, whereas the effect of increased capital intensity is more complex. Higher capital intensity will decrease the equilibrium unemployment when the elasticity of substitution between capital and labour is less than one, while the reverse happens when this elasticity is higher than one but smaller than the elasticity of substitution between products. Finally, we demonstrate how labour and product market imperfections, characterized by the wage and price setting mark-ups, affect the optimal capital stock. Our findings raise important questions for future empirical research.
Subjects:equilibrium unemployment
product market imperfections
investment
wage bargaining
JEL:E22
J51
E24
L11
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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