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Sustainable Capitalism: Full-Employment Flexicurity Growth with Real Wage Rigidities

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Author Info

  • Toichiro Asada

    (Faculty of Economics, Chuo University, Tokyo, Japan)

  • Peter Flaschel

    ()
    (Univeristy of Bielefeld, Germany)

  • Alfred Greiner

    ()
    (Univeristy of Bielefeld, Germany)

  • Christian Proano

    ()
    (Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation)

Abstract

In this paper we present a model of flexicurity capitalism that exhibits a second labor market with the government as an employer of first resort, where all workers not employed by firms in the private sector find meaningful employment. We show that the model exhibits a unique interior steady state which is asymptotically stable under real wage adjustment dynamics of the type considered in Blanchard and Katz (1999), and under a type of Okun's Law that links the level of utilization of firms to their hiring and firing decision. The introduction of a company pension fund can be shown to contribute to the viability of the analyzed economic system. However, when credit is incorporated in the model, in place of savings-driven supply side fluctuations in economic activity, investment-driven demand side business cycle fluctuations (of a probably much more volatile type) can take place.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 5-2010.

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Length: 28 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:imk:wpaper:5-2010

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Related research

Keywords: Flexicurity; employer of ¯rst resort; Solovian growth; company pension funds; sustainability;

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  1. Wilthagen, Ton, 1998. "Flexicurity: a new paradigm for labour market policy reform?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 98-202, Social Science Research Center Berlin (WZB).
  2. Torben Andersen & Michael Svarer, 2007. "Flexicurity – Labour Market Performance in Denmark," CESifo Working Paper Series 2108, CESifo Group Munich.
  3. Flaschel, Peter & Greiner, Alfred, 2009. "Employment cycles and minimum wages. A macro view," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 279-287, December.
  4. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
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