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| Author: | Kuhn, K. |
| Title: | Labour contracts, product market oligopoly, and involuntary unemployment |
| Journal: | Oxford Economic Papers
1994 : JUL, VOL. 46:3, p. 366-384 |
| Index terms: | LABOUR CONTRACTS OLIGOPOLY |
| Language: | eng |
| Abstract: | The simultaneous occurrence of (ex post) involuntary unemployment and underemployment is explained by strategic contracting of firms operating in oligopolistic product markets. Firms have an incentive to offer labour contracts in which wage payments (net of opportunity costs of labour) exceed layoff payments. Such contracts exceed marginal costs in bad states, thus relaxing price competition in the product market. In equilibrium this strategic incentive leads to inefficiently low expected employment, inefficiently high use of other inputs, and inefficient risk bearing by workers relative to the cost minimizing solution. |
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