<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

Involuntary Unemployment in a Neoclassical Model

Studia Universitatis Babes-Bolyai Oeconomica

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"Involuntary Unemployment in a Neoclassical Model"}

We show the existence of involuntary unemployment without assuming wage rigidity using a neoclassical model of consumption and production. We consider a case...

Involuntary Unemployment in a Neoclassical Model

Published Online: Sep 02, 2020

Page range: 12 - 28

DOI: https://doi.org/10.2478/subboec-2020-0007

Keywords
involuntary unemployment, indivisible labor supply, two or three-periods overlapping generations model, monopolistic competition, increasing returns to scale

© 2020 Yasuhito Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Involuntary Unemployment in a Neoclassical Model

Published Online: Sep 02, 2020

Page range: 12 - 28

DOI: https://doi.org/10.2478/subboec-2020-0007

Keywordsinvoluntary unemployment, indivisible labor supply, two or three-periods overlapping generations model, monopolistic competition, increasing returns to scale

© 2020 Yasuhito Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
involuntary unemployment, indivisible labor supply, two or three-periods overlapping generations model, monopolistic competition, increasing returns to scale