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‘Backyard’ technology and regulated wages in a neoclassical OLG growth model

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  • Luciano Fanti
  • Luca Gori

Abstract

This paper formally explores the joint roles played, on the one side, by the regulation of wages and, on the other side, by the existence of a “backyard” (or home) technology exploited by the unemployed people, in a standard neoclassical OLG growth model. The main findings are the following: 1) the introduction of a “binding” regulated wage fosters the capital accumulation and lead to a higher long term capital stock (and thus to higher output and welfare as well) in comparison with a competitive wage economy, provided that both the labour productivity at “home” and the capital weight in the firms technology are sufficiently high; 2) however, if the regulated wage is set at a too high level, the capital accumulation will be inferior to that of the competitive wage economy. These results, so far escaped closer scrutiny by economic growth literature, shed a new light on the effects of the regulation of wages and may have interesting policy implications.

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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 2008/74.

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Date of creation: 01 Sep 2008
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Handle: RePEc:pie:dsedps:2008/74

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Keywords: Regulated wage; Unemployment; Home production; OLG model;

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References

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  1. Greenwood, J. & Hercowitz, Z., 1991. "The Allocation of Capital and Time Over the Business Cycles," UWO Department of Economics Working Papers 9104, University of Western Ontario, Department of Economics.
  2. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  3. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  4. Cahuc, P. & Michel, P., 1992. "Minimum Wage, Unemployment and Growth," Papiers d'Economie Mathématique et Applications 92.35, Université Panthéon-Sorbonne (Paris 1).
  5. Greenwood, Jeremy & Seshadri, Ananth, 2005. "Technological Progress and Economic Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 19, pages 1225-1273 Elsevier.
  6. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, April.
  7. Ravn, Morten O & Sorensen, Jan Rose, 1999. " Schooling, Training, Growth and Minimum Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(3), pages 441-57, September.
  8. Lang, Kevin, 1987. "Pareto Improving Minimum Wage Laws," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 145-58, January.
  9. Eisner, Robert, 1988. "Extended Accounts for National Income and Product," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1611-84, December.
  10. Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
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Citations

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Cited by:
  1. Luciano Fanti & Luca Gori, 2009. "Endogenous lifetime in an overlapping generations small open economy," Discussion Papers 2009/92, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  2. Fanti, Luciano & Gori, Luca, 2010. "Child policy solutions for the unemployment problem," Economics Letters, Elsevier, vol. 109(3), pages 147-149, December.
  3. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, 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. Luciano Fanti & Luca Gori, 2009. "On economic growth and minimum wages," Discussion Papers 2009/78, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  6. 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.
  7. 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.
  8. 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.

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