Chamberlinian Imperfect Competition Among Rational Firm-Workers Coalitions: Is Underbidding by Unemployed Workers Less Effective?

Macroeconomic models with imperfect competition usually result in theoretical own-price elasticities of labour demand higher than one in absolute value. Yet often empirical studies find much lower estimated elasticities. A Chamberlinian two sectors model of imperfect competition with decentralised wage bargaining on labour productivity is here developed and the results show that lower theoretical elasticities are faced by rational firm-workers coalitions. Thus a lower effectiveness of underbidding by unemployed workers is theoretically suggested. Moreover an higher long term dependence of employment on nominal shocks is an other feature suggested by the model’s results.