St.Petersburg Economic seminar (HSE, EU, PDMI) on October, 29: Pavel Molchanov (Aix-Marseille School of Economics)
Topic: Increasing Returns, Monopolistic Competition, and Optimal Unemployment
Date & Time: October, 29; 18:00 - 19:00
Time: 18:00 - 19:00
Abstract: What is the link between market competition and the equilibrium level of unemployment? This paper augments the standard Krugman and Melitz models with labor matching frictions and non-CES preferences. It connects the two well-known market distortions: the allocational one (too many firms producing too little) and the labor market one (firms posting too few vacancies). First, I show that if one distortion is corrected, the other one is likely to be amplified. Therefore, the standard policies designed for the models without matching frictions are not optimal and need to be modified to take into account the labor market side. Second, I ask if a more productive economy results in a lower unemployment rate. It turns out the employment rate can rise or fall, depending on the nature of productivity improvement and its effect on the competition level.
Keywords: monopolistic competition, variable markups, matching frictions.
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