Working Paper: CEPR ID: DP1206
Authors: Jordi Gall
Abstract: We develop and analyse a real business cycle model in which both goods and labour markets are characterized by imperfect competition. In equilibrium, unemployment emerges as the result of the market power exercised by insiders at the firm level. We show that a calibrated version of the model is capable of generating both a procyclical labour supply and a countercyclical unemployment rate, in a way qualitatively consistent with US data.
Keywords: real business cycles; unemployment; insider-outsider models; endogenous markups
JEL Codes: E32; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market power exercised by workers (J54) | involuntary unemployment (J64) |
| higher market power among workers (J29) | higher unemployment rates (J64) |
| technology shocks (D89) | fluctuations in unemployment (J64) |
| changes in labor supply (J20) | unemployment dynamics (J64) |
| degree of market power (D42) | wage elasticity of labor demand (J39) |
| reduction in markups due to increased competition (D43) | lower unemployment rates (J68) |