Demand Uncertainty, Mismatch and (Un)Employment: A Microeconomic Approach

CEPR Discussion Paper Series No. 1914

Posted: 2 Mar 1999

See all articles by Jacques-François Thisse

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Mohamed Jellal

Yves Zenou

Monash University - Department of Economics; Stockholm University; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 1998

Abstract

We consider a finite number of firms, which compete imperfectly for heterogeneous workers. Firms produce a homogeneous good, sold on a competitive market, and face demand-induced price fluctuations. It is then shown that unemployment may arise in equilibrium because of both uncertainty of product demand and job mismatch. Unemployment does not arise, however, when the variance 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 supernormal profits.

JEL Classification: I28, J41, L13

Suggested Citation

Thisse, Jacques-François and Jellal, Mohamed and Zenou, Yves, Demand Uncertainty, Mismatch and (Un)Employment: A Microeconomic Approach (July 1998). CEPR Discussion Paper Series No. 1914. Available at SSRN: https://ssrn.com/abstract=137233

Jacques-François Thisse (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yves Zenou

Monash University - Department of Economics ( email )

Australia

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

No contact information is available for Mohamed Jellal

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