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This work proposes to study the emergence of aggregate instability, in the form of macroeconomic fluctuations due to volatility in agents' expectations, caused by imperfect competition on the labor market. We consider that firms have some monopsony power which is introduced by a) considering that firms face a finite individual wage elasticity of labor supply, due to imperfect substitutability of labor across markets b) there is a finite number of firms hiring under Cournot competition on the labor market. We show that given a free-entry and zero profit conditions, we obtain local indeterminacy when the elasticity of the sectoral labor supply is sufficiently low and factors are substitutable enough. We illustrate numerically our results with some empirical estimates for OECD countries and we conclude that expectation-driven fluctuations is obtained for plausible values.
