IDEAS home Printed from https://ideas.repec.org/a/bla/ijethy/v19y2023i4p961-987.html
   My bibliography  Save this article

Optimal growth with labor market frictions

Author

Listed:
  • Marco Guerrazzi

Abstract

In this paper, I build a capital accumulation model in which labor has to be alternatively employed in the production of goods or in the recruitment of workers. Within this setting, I show that (i) the intensive measure of capital may converge towards its stationary value in a non‐monotonic manner, (ii) Pareto‐optimal allocations can also be achieved in a decentralized environment in which the wage is indexed to labor market tightness, and (iii) the consistency of the wage that implements efficient allocations with the competitiveness of the market for goods relies on vanishing values of the discount rate.

Suggested Citation

  • Marco Guerrazzi, 2023. "Optimal growth with labor market frictions," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 961-987, December.
    • Handle: RePEc:bla:ijethy:v:19:y:2023:i:4:p:961-987
    DOI: 10.1111/ijet.12386
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ijet.12386
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ijet.12386?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    2. Etienne Wasmer & Alexandre Janiak, 2014. "Employment protection and capital-labor ratios," Sciences Po Economics Discussion Papers 2014-11, Sciences Po Departement of Economics.
    3. David Card, 2001. "The Effect of Unions on Wage Inequality in the U.S. Labor Market," ILR Review, Cornell University, ILR School, vol. 54(2), pages 296-315, January.
    4. Marco Guerrazzi, 2023. "The Keynesian nexus between the market for goods and the labour market," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 70(2), pages 195-216, June.
    5. Brzustowski, Thomas & Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2018. "Disentangling goods, labor, and credit market frictions in three European economies," Labour Economics, Elsevier, vol. 50(C), pages 180-196.
    6. Oleg Itskhoki & Benjamin Moll, 2019. "Optimal Development Policies With Financial Frictions," Econometrica, Econometric Society, vol. 87(1), pages 139-173, January.
    7. Philippe Aghion & Peter Howitt, 1994. "Growth and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 477-494.
    8. Monique Ebell & Christian Haefke, 2002. "Product Market Deregulation and Labor Market Outcomes," Working Papers 02.08, Swiss National Bank, Study Center Gerzensee.
    9. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    10. repec:hal:spmain:info:hdl:2441/2a53rsm0o89kn9vjs4dhjqnvn5 is not listed on IDEAS
    11. Robert E. Hall, 2017. "High Discounts and High Unemployment," American Economic Review, American Economic Association, vol. 107(2), pages 305-330, February.
    12. Mr. Romain A Duval & Yi Ji & Longji Li & Myrto Oikonomou & Carlo Pizzinelli & Mr. Ippei Shibata & Alessandra Sozzi & Kirsi Silvennoinen & Ms. Marina Mendes Tavares, 2022. "Labor Market Tightness in Advanced Economies," IMF Staff Discussion Notes 2022/001, International Monetary Fund.
    13. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(3), pages 233-240.
    14. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258, National Bureau of Economic Research, Inc.
    15. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    16. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    17. Been‐Lon Chen & Hung‐Ju Chen & Ping Wang, 2011. "Labor‐Market Frictions, Human Capital Accumulation, And Long‐Run Growth: Positive Analysis And Policy Evaluation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 131-160, February.
    18. Marco Guerrazzi, 2015. "Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(3), pages 343-358.
    19. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    20. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Decembrie.
    21. repec:hal:spmain:info:hdl:2441/3aom2mve1k829p8sp4h3vrpgkg is not listed on IDEAS
    22. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    23. Kangoh Lee, 2021. "Labor market frictions, capital, taxes and employment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1329-1359, December.
    24. Christopher A. Pissarides & Giovanna Vallanti, 2007. "The Impact Of Tfp Growth On Steady-State Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 607-640, May.
    25. Farmer, Roger, 2010. "Expectations, Employment and Prices," OUP Catalogue, Oxford University Press, number 9780195397901.
    26. Roger E.A. Farmer, 2013. "Animal Spirits, Financial Crises and Persistent Unemployment-super-," Economic Journal, Royal Economic Society, vol. 0, pages 317-340, May.
    27. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-1386, November.
    28. repec:hal:wpspec:info:hdl:2441/2ennjqtovk8lvprrqlro5ni69v is not listed on IDEAS
    29. Eriksson, Clas, 1997. "Is There a Trade-Off between Employment and Growth?," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 77-88, January.
    30. repec:hal:spmain:info:hdl:2441/2ennjqtovk8lvprrqlro5ni69v is not listed on IDEAS
    31. Robert Shimer, 2010. "Labor Markets and Business Cycles," Economics Books, Princeton University Press, edition 1, number 9217.
    32. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    33. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 217-227.
    34. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    35. Masters, Adrian M, 1998. "Efficiency of Investment in Human and Physical Capital in a Model of Bilateral Search and Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 477-494, May.
    36. Fiaschi, Davide & Lavezzi, Andrea Mario, 2007. "Nonlinear economic growth: Some theory and cross-country evidence," Journal of Development Economics, Elsevier, vol. 84(1), pages 271-290, September.
    37. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco Guerrazzi, 2023. "The Keynesian nexus between the market for goods and the labour market," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 70(2), pages 195-216, June.
    2. Guerrazzi, Marco & Candido, Giuseppe, 2023. "The determination of the price of capital goods: A differential game approach," MPRA Paper 119118, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    2. Chen, Been-Lon & Hsu, Mei & Lai, Chih-Fang, 2016. "Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 273-292.
    3. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    4. Vasilev, Aleksandar, 2020. "Search and matching frictions and business cycle fluctuations in Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(3), pages 319-340.
    5. Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    6. Hashimoto, Ken-ichi & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Structural unemployment, underemployment, and secular stagnation," Journal of Economic Theory, Elsevier, vol. 209(C).
    7. Etro, Federico, 2017. "Research in economics and macroeconomics," Research in Economics, Elsevier, vol. 71(3), pages 373-383.
    8. Kuehn Lars-Alexander & Petrosky-Nadeau Nicolas & Zhang Lu, "undated". "An Equilibrium Asset Pricing Model with Labor Market Search," GSIA Working Papers 2010-E63, Carnegie Mellon University, Tepper School of Business.
    9. Chen, Been-Lon & Lai, Chih-Fang, 2015. "Effects of labor taxes and unemployment compensation on labor supply in a search model with an endogenous labor force," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 300-317.
    10. Ken-ichi Hashimoto & Yoshiyasu Ono & Matthias Schlegl, 2020. "Structural Unemployment, Underemployment, and Secular Stagnation," CESifo Working Paper Series 8318, CESifo.
    11. Aleksandar Vasilev, 2021. "Optimal fiscal policy in a model with search-and-matching frictions: the case of Bulgaria (1999–2018)," Post-Communist Economies, Taylor & Francis Journals, vol. 33(4), pages 500-515, May.
    12. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    13. Mete Kilic & Jessica A. Wachter, 2015. "Risk, Unemployment, and the Stock Market: A Rare-Event-Based Explanation of Labor Market Volatility," NBER Working Papers 21575, National Bureau of Economic Research, Inc.
    14. Alejandro Justiniano & Claudio Michelacci, 2012. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the United States and Europe," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 169-235.
    15. Hung-Ju Chen & Been-Lon Chen & Ping Wang, 2010. "Taxing Capital is Not a Bad Idea Indeed: The Role of Human Capital and Labor-Market Frictions," 2010 Meeting Papers 827, Society for Economic Dynamics.
    16. Bjoern Bruegemann, 2023. "Invariance of Unemployment and Vacancy Dynamics with Respect to Diminishing Returns to Labor at the Firm Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 915-942, December.
    17. Aleksander Berentsen & Guido Menzio & Randall Wright, 2011. "Inflation and Unemployment in the Long Run," American Economic Review, American Economic Association, vol. 101(1), pages 371-398, February.
    18. Davis, Colin & Hashimoto, Ken-ichi, 2022. "Productivity growth, industry location patterns and labor market frictions," Regional Science and Urban Economics, Elsevier, vol. 97(C).
    19. Ross Doppelt, 2019. "Skill Flows: A Theory of Human Capital and Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 84-122, January.
    20. Ruy Lama & Juan Pablo Medina, 2019. "Fiscal Deficits and Unemployment Dynamics: The Role of Productivity Gains and Wage Rigidities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 121-140, October.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ijethy:v:19:y:2023:i:4:p:961-987. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1742-7355 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.