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Demand uncertainty, mismatch and (un)employment

Author

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  • Jellal, Mohamed
  • Thisse, Jacques-Francois
  • Zenou, Yves

Abstract

We consider a finite number of firms which compete imperfectly for heterogenous workers. Firms produce a homogeneous good sold on a competitive market and face demand-induced price fluc- tuations. It is then shown that unemployment may arise in equilibrium because of uncertainty on product demand and job mismatch. However, unemployment does not arise when the vari- ance of the demand shock is small enough and/or the cost of mismatch is sufficiently low. Full employment always prevails when there is free entry. Hence, unemployment may persist as long as the incumbent firms choose their skill requirements to protect their supranormal profits.
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Suggested Citation

  • Jellal, Mohamed & Thisse, Jacques-Francois & Zenou, Yves, 2005. "Demand uncertainty, mismatch and (un)employment," Economics Letters, Elsevier, vol. 89(2), pages 248-254, November.
    • Handle: RePEc:eee:ecolet:v:89:y:2005:i:2:p:248-254
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    References listed on IDEAS

    as
    1. Hamilton, Jonathan & Thisse, Jacques-Francois & Zenou, Yves, 2000. "Wage Competition with Heterogeneous Workers and Firms," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 453-472, July.
    2. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    3. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    4. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    5. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
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    Cited by:

    1. Xavier Wauthy & Yves Zenou, 2002. "How Does Imperfect Competition in the Labor Market Affect Unemployment Policies?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(3), pages 417-436, July.
    2. Elias Oikarinen, 2009. "Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki," Discussion Papers 53, Aboa Centre for Economics.
    3. Jellal, Mohamed & Zenou, Yves, 1999. "Efficiency wages and the quality of job matching," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 201-217, June.
    4. Laurence Rioux, 2000. "Human Capital, Local Labor Markets and Regional Interaction," Econometric Society World Congress 2000 Contributed Papers 1740, Econometric Society.
    5. Jellal, Mohamed, 2012. "Maroc éducation et emploi une analyse théorique [Morocco education and employment a theory]," MPRA Paper 38465, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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