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A Dual Economy of the New Keynesian Type with Self-Employment Included

In: A Theory of the Producer-Consumer Household

Author

Listed:
  • Yoshihiro Maruyama

    (University of Tsukuba)

  • Tadashi Sonoda

    (Nagoya University)

Abstract

Producer-consumer households organize their family firms in such a way as to maximize the welfare of their family members, while capitalist firms organize their production activity to maximize the residual profit imputable to themselves. Furthermore, they offer a higher than equilibrium rate of wage to use the resulting excess supply of labor as a device for disciplining workers (see, for example, Shapiro and Stiglitz, 1984; Yellen, 1984), while family firms of the producer-consumer households need not do so since they employ their own family members. Some members of family are employed by capitalist firms. If they are dismissed, they may either return to their family firms or start a family firm of their own. How does an economy consisting of these distinct types of producing units behave over aggregate economic fluctuations in comparison with an economy consisting of capitalist firms and worker-consumer households? A dual economy model of the New Keynesian type consisting of capitalist firms and producer-consumer households is developed to examine its behavior over the fluctuations in aggregate demand for outputs caused by the changes in investment. It turns out that the differential of wage between the capitalist and the self-employment sectors proves to be countercyclical as unemployment does so in models of economy of the regular Keynesian type consisting of capitalist firms and worker-consumer households.

Suggested Citation

  • Yoshihiro Maruyama & Tadashi Sonoda, 2011. "A Dual Economy of the New Keynesian Type with Self-Employment Included," Palgrave Macmillan Books, in: A Theory of the Producer-Consumer Household, chapter 7, pages 191-218, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-34668-0_7
    DOI: 10.1057/9780230346680_7
    as

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