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Title:Awareness of General Equilibrium Effects and Unemployment PDF Logo
Authors:Gersbach, Hans
Schniewind, Achim
Issue Date:2001
Series/Report no.:IZA Discussion paper series 394
Abstract:We examine wage-bargaining in a two-sector economy when employers and labor unions in each sector are not always aware of all general equilibrium feedback effects. We show analytically that if agents only consider labor demand effects, low real wages and low unemployment result. With an intermediate view, i.e. when partial equilibrium effects within a sector are taken into account, high real wages and unemployment result. If all general equilibrium effects are considered at once, low real wages and low unemployment again result. The assumption that unions and employers? federations are not able to incorporate all feedback effects from other sectors may explain the persistence of high unemployment in Europe.
Subjects:Sectoral wage-bargaining
awareness of general equilibrium effects
unemployment
JEL:D58
E24
L13
J60
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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