Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70294
Authors: 
Kaas, Leo
Madden, Paul
Year of Publication: 
1999
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 68
Abstract: 
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 equilibria involving unemployment. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the low wage firm out of both markets. Full employment equilibria may also exist, but only the involuntary unemployment equilibria are robust to decreasing returns.
Subjects: 
involuntary unemployment
multi-stage game
imperfect competition
JEL: 
D43
E24
Document Type: 
Working Paper

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