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Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation

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Author Info
Erkki Koskela ()
Mikko Puhakka ()
Abstract

We analyze the stability and dynamics of an overlapping generations model under imperfectly competitive labour markets without population growth and with perfect foresight. Under right-to-manage wage bargaining we assume that wage is negotiated after the decision on the capital stock. With Cobb-Douglas utility and production functions the steady state is unique and the steady state capital stock depends on the trade union’s bargaining power. This is because higher bargaining power of the trade union will induce workers to save more thus boosting the capital stock, ceteris paribus. Finally, we show that the steady state equilibrium is a saddle point.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1840.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1840

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Related research
Keywords: overlapping generations economy capital accumulation flexible wage negotiation stability and dynamics

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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  1. Devereux, Michael B. & Lockwood, Ben, 1991. "Trade unions, non-binding wage agreements, and capital accumulation," European Economic Review, Elsevier, vol. 35(7), pages 1411-1426, October. [Downloadable!] (restricted)
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  2. Skaksen, Mette Yde & Sorensen, Jan Rose, 2001. "Should trade unions appreciate foreign direct investment," Journal of International Economics, Elsevier, vol. 55(2), pages 379-390, December. [Downloadable!] (restricted)
  3. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  4. Anderson, Simon P & Devereux, Michael, 1988. " Trade Unions and the Choice of Capital Stock," Scandinavian Journal of Economics, Blackwell Publishing, vol. 90(1), pages 27-44.
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  5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  6. Graziella Bertocchi, 2003. "Labor Market Institutions, International Capital Mobility, and the Persistence of Underdevelopment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 637-650, July. [Downloadable!] (restricted)
  7. Martin Hellwig, 2004. "The Relation between Real Wage Rates and Employment: An Intertemporal General- Equilibrium Analysis," German Economic Review, Blackwell Publishing, vol. 5(3), pages 263-295, 08. [Downloadable!] (restricted)
  8. Anderson, Simon P & Devereux, Michael B, 1991. "The Trade-off between Precommitment and Flexibility in Trade Union Wage Setting," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 549-69, October. [Downloadable!] (restricted)
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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