1. bookVolume 65 (2020): Issue 2 (August 2020)
Journal Details
License
Format
Journal
eISSN
2065-9644
First Published
06 Mar 2016
Publication timeframe
3 times per year
Languages
English
access type Open Access

Involuntary Unemployment in a Neoclassical Model

Published Online: 02 Sep 2020
Volume & Issue: Volume 65 (2020) - Issue 2 (August 2020)
Page range: 12 - 28
Journal Details
License
Format
Journal
eISSN
2065-9644
First Published
06 Mar 2016
Publication timeframe
3 times per year
Languages
English
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.

Keywords

JEL Classification

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