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Divisibility and indivisibility of labor supply, and involuntary unemployment: A perfect competition model

Tanaka, Yasuhito (2020): Divisibility and indivisibility of labor supply, and involuntary unemployment: A perfect competition model.

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Abstract

We show the existence of involuntary unemployment without assuming wage rigidity. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under perfect competition with decreasing or constant returns to scale technology. Indivisibility of labor supply may be a ground for the existence of involuntary unemployment. However, we show that under some conditions there exists involuntary unemployment even when labor supply is divisible.

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