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The growth cycle and labour contract length

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  • Luciano Fanti

Abstract

This paper extends the growth cycle model a la Goodwin (1967) by introducing the risk-averse behaviour of the agents and a consequent positive correlation between wages and profitability. This extension is motivated by the impressive evidence on the joint role played by aggregate unemployment and lagged profitability in explaining wage determination. The effects of this extension in the growth cycle context are analysed, and the global and local dynamic effects of the union contract length are investigated. The following somewhat unexpected stabilisation policy rules have been argued: 1) in contrast with conventional wisdom the "local" stability criterion would suggest reducing the average length of labour contracts; 2) "global" considerations, however, could suggest a completely opposite policy, in the case in which the policy-makers prefer an almost globally stable fluctuation (resistant to strong shocks) to a small stable "corridor" (destroyed by very small shocks). Finally the deterministic business cycles triggered by the centralised contract length with risk-averse agents shown in this paper propose a role of uncertainty in determining economic fluctuations which somewhat differs from the manifestations of exogenous shocks to a fundamentally stable equilibrium proposed by Real Business Cycle theorists.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2003/17.

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Date of creation: 01 Jan 2003
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Handle: RePEc:pie:dsedps:2003/17

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Related research

Keywords: growth cycle models; business cycles; labour contract length; Hopf bifurcation;

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Cited by:
  1. Luciano Fanti & Luca Gori, 2008. "PAYG pensions and economic cycles: exogenous versus endogenous fertility," Discussion Papers 2008/75, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  2. Luciano Fanti & Luca Gori, 2012. "Endogenous Lifetime in an Overlapping-Generations Small Open Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 121-152, June.
  3. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  4. Manuela Gussoni - Andrea Mangani, 2009. "The impact of public funding for innovation on firms' R&D investments: Do R&D cooperation and appropriability matter?," Discussion Papers 2009/90, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  5. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  6. Lorenzo Corsini & Elisabetta Olivieri, 2008. "Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy," Discussion Papers 2008/73, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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