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Dual Labor Market and Endogenous Fluctuations

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  • Francesco De Palma

    ()
    (BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université Louis Pasteur - Strasbourg I)

  • Thomas Seegmuller

    ()
    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - CNRS : UMR8594 - Université Paris I - Panthéon-Sorbonne)

Abstract

We study the influence of wage differential on the emergence of endogenous fluctuations. In this way, we introduce a dual labor market, based on the Shapiro-Stiglitz efficiency wage theory in an overlapping generations model. We show that wage inequality is a source of endogenous fluctuations. Indeed, a sufficiently strong wage differentialleads to the occurrence of cycles of period two and local indeterminacy. Moreover, in contrast to several existing contributions, these results depend neither on increasing returns to scale, nor on the degree of capital-labor substitution.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00194165.

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Date of creation: Jun 2005
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Publication status: Published, Macroeconomic Dynamics, 2005, 9, 3, 398-411
Handle: RePEc:hal:cesptp:halshs-00194165

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00194165
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Keywords: Endogenous fluctuations ; dual labor market ; wage inequality ; efficiency wage;

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  1. Benhabib, Jess & Nishimura, Kazuo, 1996. "Indeterminancy and Sunspots with Constant Returns," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-44, C.V. Starr Center for Applied Economics, New York University.
  2. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9503, Universite de Montreal, Departement de sciences economiques.
  3. Marta Aloi & Huw D. Dixon & Teresa Lloyd-Braga, 1998. "Endogenous Fluctuations In an Open Economy with Increasing Returns to Scale," Discussion Papers, University of Copenhagen. Department of Economics 98-03, University of Copenhagen. Department of Economics.
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  5. GRANDMONT, Jean-Michel & PINTUS, Patrick & de VILDER, Robin, 1997. "Capital-labor substitution and competitive nonlinear endogenous business cycles," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1997087, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Flug, K. & Hercowitz, Z., 1998. "Equipment Investment and the Relative Demand for Skilled Labour: International Evidence," Papers, Tel Aviv 05-98, Tel Aviv.
  7. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
  8. Harrison, Sharon G. & Weder, Mark, 2002. "Tracing externalities as sources of indeterminacy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(5), pages 851-867, May.
  9. Agenor, Pierre-Richard & Aizenman, Joshua, 1997. "Technological change, relative wages, and unemployment," European Economic Review, Elsevier, Elsevier, vol. 41(2), pages 187-205, February.
  10. Jones, Stephen R. G., 1987. "Screening unemployment in a dual labor market," Economics Letters, Elsevier, Elsevier, vol. 25(2), pages 191-195.
  11. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  12. Koebel, Bertrand & Falk, Martin & Laisney, Francois, 2003. "Imposing and Testing Curvature Conditions on a Box-Cox Cost Function," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 21(2), pages 319-35, April.
  13. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick, 1996. "Multiple steady states and endogenous fluctuations with increasing returns to scale in production," CEPREMAP Working Papers (Couverture Orange) 9618, CEPREMAP.
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  19. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, Econometric Society, vol. 60(6), pages 1351-86, November.
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  21. Reichlin, Pietro, 1986. "Equilibrium cycles in an overlapping generations economy with production," Journal of Economic Theory, Elsevier, Elsevier, vol. 40(1), pages 89-102, October.
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Cited by:
  1. De Palma, Francesco & Seegmuller, Thomas, 2004. "Unions, wage differential and indeterminacy," Research in Economics, Elsevier, Elsevier, vol. 58(3), pages 205-218, September.

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