This paper analyzes the impact of product market competition on unemployment, wage and welfare in a model where unemployment is caused by the efficiency wage consideration and oligopolistic firms compete in quantity. It is shown that while more intense competition in the product market increases output and reduces price, it does not necessarily lead to a lower unemployment rate or a higher wage for workers. Depending on the technologies, the relationship between the intensity of competition and the level of employment (respectively, wage, welfare) is not always monotonic, and, in some instances, has an inverted U-shape.
Canadian Journal of Economics
Department of Economics

Chen, Z, & Zhao, B. (Bo). (2014). Unemployment and product market competition in a Cournot model with efficiency wages. Canadian Journal of Economics, 47(2), 555–579. doi:10.1111/caje.12081