A way of explaining unemployment through a wage-setting game

We investigate a duopsonistic wage-setting game in which the rms have a limited number of workplaces. We assume that the rms have heterogeneous productivity, that there are two types of workers with dierent reservation wages and that a worker's productivity is independent of his type. We show that equilibrium unem- ployment arises in the wage-setting game under certain conditions, although the efficient allocation of workers would result in full employment.

"It's so little money you could make as much at home" - options for work in an impoverished rural region of high unemployment.

Hungary has a higher unemployment rate than the member states of the European Union and even most former socialist countries. This rate for 15-64 year-olds has been around 56% since 1999, as against 66% in the European Union (OECD Employment Database). There is also a high degree of regional unevenness within the country. The situation is worst in North Hungary, an area of multiple economic and social deprivations. Several pieces of research have analysed the causes of long-term unemployment and have highlighted the main social, geographical and institutional factors behind it. People of low educational attainment who live in small villages and members of the Roma minority are particularly likely to have been without jobs for a long time.