We make use of an evolutionary game approach to study the relation between wage flexibility and unemployment in an economy with decentralized wage bargains. In our model, labor unions pick a nominal wage out of a finite set with cardinality in each period, while firms choose employment levels that maximize their profits. We are able to show that: 1) the economy presents multiple equilibria, some are characterized by homogeneity of nominal wages (pure strategy equilibrium) and others by heterogeneity of nominal wages (mixed strategy equilibrium); 2) the medium-run equilibrium is selected by a social learning process, given by a replicator dynamics; and 3) the selected medium-run equilibrium may not be the full employment equilibrium.
keynesian model; unemployment; evolutionary games
