Learning of General Equilibrium Effects and the Unemployment Trap

34 Pages Posted: 18 Apr 2001

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Achim Schniewind

University of Heidelberg - Alfred Weber Institute for Economics

Date Written: February 2001

Abstract

We examine wage bargaining when employers and labor unions do not always take all general equilibrium effects into account but learn a steady state. If agents do hardly consider general equilibrium effects, low real wages and low unemployment results. With an intermediate view, when partial equilibrium effects are taken into account, high real wages and unemployment results, which may explain the persistence of high unemployment in Europe. If all general equilibrium effects are incorporated at once, again low real wages and low unemployment results. We thus obtain a hump-shaped relationship between the extend of feedback effects incorporated by the bargaining parties and real wages or unemployment.

Keywords: Labor markets, wage bargaining, learning of general equilibrium effects, unemployment

JEL Classification: D58, E24, J60, L13

Suggested Citation

Gersbach, Hans and Schniewind, Achim, Learning of General Equilibrium Effects and the Unemployment Trap (February 2001). IZA Discussion Paper No. 254. Available at SSRN: https://ssrn.com/abstract=265633

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Achim Schniewind

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

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