INVOLUNTARY UNEMPLOYMENT IN A NEOCLASSICAL MODEL
DOI:
https://doi.org/10.2478/subboec-2020-0007Keywords:
involuntary unemployment, indivisible labor supply, two or three-periods overlapping generations model, monopolistic competition, increasing returns to scale.Abstract
We show the existence of involuntary unemployment without assuming wage rigidity using a neoclassical model of consumption and production. We consider a case of indivisible labor supply and increasing returns to scale under monopolistic competition. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations (OLG) model with two or three generations. In a two-periods OLG model it is possible that a reduction of the nominal wage rate reduces unemployment. However, if we consider a three-periods OLG model including a childhood period, a reduction of the nominal wage rate does not necessarily reduce unemployment.
JEL classification: E12, E24.
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