Equilibrium Unemployment: Labour Market Imperfections and Interactions with Product and Capital Market Imperfections

The explanations for the high and persistent European unemployment have typically focused on labour market imperfections with at least three important theoretical approaches to study the determination of unemployment: efficiency wage theories, search and matching theories and theories of union bargaining. In the Finnish labour market a severe mismatch between labour supply and labour demand has played a significant role in the creation of the present extensive unemployment problem. In an empirical sense this mismatch seems to have increased dramatically since the mid 1990’s. Thus, the creation of more jobs is not sufficient to eliminate the harmful unemployment. The first part of this project will focus exclusively on labour market imperfections by exploring the Beveridge curve and the matching function in the Finnish labour market. This study is planned to generate a doctoral dissertation for M.Sc. Heidi Soininen, who will be a full-time researcher within the framework of the project. The second part of this research project will investigate the impact of credit and product market imperfections on equilibrium unemployment in economies with imperfectly competitive labour markets. In this respect professor Rune Stenbacka will conduct studies on the following themes in primary cooperation with professor Erkki Koskela: 1 Profit Sharing and Equilibrium Unemployment with Negotiated Compensation, 2 Capital Intensity, Equilibrium Unemployment and Investment, 3 Wage Structure, Credit Market Imperfections and Equilibrium Unemployment, and 4 Negotiated Wages, Product Market Imperfections and Equilibrium Unemployment. Collaborators: Erkki Koskela (University of Helsinki)