Resource title

The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining

Resource image

image for OpenScout resource :: The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining

Resource description

Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and commodity prices. A widely used conceptual framework is specifying a wage-setting and a price setting equation, while a more explicit microfoundation recurs to wage bargaining in the labour markets and monopolistic competition in the commodity markets; (Blanchard and Giavazzi, 2001). Characteristic for those approaches is that deregulating the labour markets (i.e. reducing the bargaining power of workers and/or reducing the unemployment benefits) and/or deregulating the commodity markets (i.e. reducing the market power of commodity suppliers) increases equilibrium employment. However, those models are typically static models which do not specify explicitly the economic process in time. In the following paper, we develop a dynamic macroeconomic model in which commodity markets are characterised by monopolistic competition and labour markets by wage bargaining. The number of firms is fixed; the incorporation of firm entry and exit is left for further research. In our analysis the equilibrium solution is a fixed point of the dynamic model which exhibits the usual comparative static properties (deregulating the labour and/or the commodity market increases employment). However, depending upon the parameters the fixed point may loose stability through a Flip-bifurcation giving rise to cyclical solutions. We show analytically that commodity and labour market deregulation may lead to instability; in numerical simulation we even found cases in which deregulation leads to lower average employment. Both results, valid in a dynamic framework, contrast with the usual comparative static properties. (author's abstract) ; Series: Department of Economics Working Paper Series

Resource author

Pasquale Commendatore, Ingrid Kubin

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://epub.wu.ac.at/982/1/document.pdf

Resource license

Adapt according to the license agreement. Always reference the original source and author.