March 3, 2010

A labour market extension for WorldScan; modelling labour supply, wage bargaining and unemployment in a CGE framework

This paper describes a labour market extension for the CGE model "WorldScan". The labour market module features endogenous labour supply at two margins: participation and hours of work. Involuntary unemployment is captured through a collective bargaining ("right to manage") set-up.

The paper explains how these two labour market mechanisms interact and how they are calibrated to empirical elasticities.

Illustrative simulations that can be placed in the context of the "double dividend" literature show the working mechanisms of the module.