Journal of Economics and Management Volume 16, No. 2 September, 2020

Divisibility of Labor Supply and Involuntary Unemployment: A Perfect Competition Model

Masahiko Hattori

Faculty of Economics, Takasaki City University of Economics, 1300 Kaminamie, Takasaki, Gunma, 370-0801, Japan

Yasuhito Tanaka

Faculty of Economics, Doshisha University, Kyoto, Japan

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.

Keywords：Involuntary Unemployment, Perfect Competition, Divisible Labor Supply.

JEL Classifications：E12, E24.

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