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

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  • Koskela, Erkki

    ()
    (University of Helsinki)

  • Puhakka, Mikko

    ()
    (University of Oulu)

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    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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    Bibliographic Info

    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
    Date of revision:
    Handle: RePEc:iza:izadps:dp3246

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    Related research

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

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    1. 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.
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    3. 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.
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    10. 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.
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    12. Spector, David, 2002. "Competiton and the capital-labor conflict," CEPREMAP Working Papers (Couverture Orange) 0207, CEPREMAP.
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    14. Rodolphe Dos Santos Ferreira & Teresa Lloyd-Braga, 2002. "Can market power sustain endogenous growth in overlapping-generations economies?," Economic Theory, Springer, vol. 20(1), pages 199-205.
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