The Impact of Product Market Competition on Employment and Wages

40 Pages Posted: 23 Apr 2001

See all articles by Bruno Amable

Bruno Amable

National Center for Scientific Research (CNRS) - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP); Université Paris I Panthéon-Sorbonne

Donatella Gatti

Paris School of Economics (PSE); IZA Institute of Labor Economics

Date Written: March 2001

Abstract

Standard economic wisdom generally stresses the benefits of increased competition on the product market. This paper proposes a model of monopolistic competition with an endogenous determination of workers' flows in and out of unemployment, where wages are determined according to an efficiency wage mechanism. We show that an increase in product market competition boosts the hiring rate as well as the separation rate. Hence, the efficiency wage schedule compatible with more competition shifts upward. An adverse effect on workers' incentive is at work which pushes real wages up to the point that increased competition may indeed generate employment losses rather than gains.

Keywords: Unemployment, Efficiency Wage, Imperfect Competition

JEL Classification: E24, J41, J63, L13

Suggested Citation

Amable, Bruno and Gatti, Donatella, The Impact of Product Market Competition on Employment and Wages (March 2001). IZA Discussion Paper No. 276. Available at SSRN: https://ssrn.com/abstract=267214

Bruno Amable

National Center for Scientific Research (CNRS) - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP) ( email )

Ecole Normale Superieure
48 boulevard Jourdan
Paris, 75014
France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Donatella Gatti (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

IZA Institute of Labor Economics

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

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