Is Perfection Optimal? Employment and Product Market Competition

  • Bruno Amable
  • Donatella Gatti


This paper proposes a model of efficiency wage with endogenous workers flows in interaction with imperfect competition on the product markets. Subject to economy-wide shocks, firms hire and fire workers thus generating a certain turnover. We show that the intensity of this turnover negatively affects workers’ incentives and induces higher efficiency wage premia. Increased competition pushes real wages up but effort incentive requirements prevent large wage adjustments. Hence, adjustments are made with quantities: both the separation and hiring rates increase with competition, increasing the wage premium and contributing to lower employment. As a consequence, an employment-maximising level of competition may exist.


Labor Market Real Wage Wage Premium Market Imperfection Imperfect Competition 
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Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Bruno Amable
    • 1
  • Donatella Gatti
    • 2
  1. 1.Université de Lille II & CEPREMAPFrance
  2. 2.Wissenschaftszentrum für Sozialforschung Berlin (WZB)Germany

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