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Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations

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Author Info
Erkki Koskela () (University of Helsinki and IZA)
Mikko Puhakka () (University of Oulu)
Abstract

We analyze the stability and dynamics of an overlapping generations model with imperfectly competitive labour markets. By focusing on the right-to-manage wage bargaining we assume that wage is negotiated after the capital stock decision. With Cobb-Douglas utility and production functions the steady state is unique and the steady state capital stock depends positively both on the trade union’s bargaining power and on the wage elasticity of labour demand. That elasticity depends either on lower decreasing returns to scale and/or more intensive product market competition. Finally, we show that the steady state equilibrium is a saddle.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3246.

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Length: 21 pages
Date of creation: Dec 2007
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Handle: RePEc:iza:izadps:dp3246

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

Other versions of this item:

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

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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)
    Other versions:
  2. Rocheteau, Guillaume, 1999. "Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 399-409, July.
  3. 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.
    Other versions:
  4. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x.
  5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  6. Spector, David, 2004. "Competition and the capital-labor conflict," European Economic Review, Elsevier, vol. 48(1), pages 25-38, February. [Downloadable!] (restricted)
  7. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January. [Downloadable!] (restricted)
  8. Rui Coimbra & Teresa Lloyd-Braga & Leonor Modesto, 2005. "Endogenous fluctuations in unionized economies with productive externalities," Economic Theory, Springer, vol. 26(3), pages 629-649, October. [Downloadable!] (restricted)
  9. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  10. Lloyd-Braga, Teresa & Modesto, Leonor, 2007. "Indeterminacy in a finance constrained unionized economy," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 347-364, April. [Downloadable!] (restricted)
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  11. De Palma, Francesco & Seegmuller, Thomas, 2004. "Unions, wage differential and indeterminacy," Research in Economics, Elsevier, vol. 58(3), pages 205-218, September. [Downloadable!] (restricted)
  12. Egger, Hartmut & Egger, Peter, 2005. "Labor market effects of outsourcing under industrial interdependence," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 349-363. [Downloadable!] (restricted)
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