Book Description

In this thesis it is analyzed if promoting product market competition can help to to fight unemployment in Europe. We have used a general equilibrium model in order to study how reducing mark-ups and increasing productivity in one sector affect aggregate unemployment for an exogenously given minimum real wage. The bottom-line was that product market reforms will help to reduce aggregate unemployment under most circumstances. Modeling a microfoundation of mark-ups, we have demonstrated that different learning abilities of firms with respect to general equilibrium effects lead to different levels of unemployment. If firms, competing a la Cournot, consider only partial equilibrium effects when choosing quantities, the observation of general equilibrium feedbacks will lead to repeated quantity adjustments until a steady state is reached. We have used the above model to show that the impacts of mergers of firms on employment are rather negative. We then have examined wage bargaining between employers and labor unions. We have demonstrated that 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. If all general equilibrium effects are incorporated at once, again low real wages and low unemployment results. We thus have obtained a hump-shaped relationship between the extend of feedback effects incorporated by the bargaining parties and real wages or unemployment. Finally the impacts of uneven productivity improvements on employment were shown to generally remain positive when wages are set endogenously by wage bargaining.