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Title:How Does Imperfect Competition in the Labor Market Affect Unemployment Policies? PDF Logo
Authors:Wauthy, Xavier
Zenou, Yves
Issue Date:2001
Series/Report no.:IZA Discussion paper series 340
Abstract:We consider a continuum of workers ranked according to their abilities to acquire education and two firms with different technologies that imperfectly compete in wages to attract these workers. Once employed, each worker bears an education cost proportional to his/her initial ability, this cost being higher in the high-technology firm. At the Nash equilibrium, we show that the unemployed workers are those with the lowest initial abilities. We then study different policies that subsidy either the education cost or wages and compare them. We found that the first best allocation can only be implemented by selective policies. We then analyze second best non-selective policies that do not discriminate between workers and firms and show that, in terms of welfare, subsidizing education costs or wages is strictly equivalent.
Subjects:Nash equilibrium in wages
heterogeneous workers and firms
inequality
unemployment policies
JEL:H20
J31
L13
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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