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Sustainable capitalism: Full-employment flexicurity growth with real wage rigidities

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  • Asada, Toichiro
  • Flaschel, Peter
  • Greiner, Alfred
  • Proaño, Christian R.

Abstract

Abstract In this paper we present a model of flexicurity capitalism that exhibits a second labor market with the government as an employer of first resort, where all workers not employed by firms in the private sector find meaningful employment. We show that the model exhibits a unique interior steady state which is asymptotically stable under real wage adjustment dynamics of the type considered in Blanchard and Katz (1999), and under a type of Okun's Law that links the level of utilization of firms to their hiring and firing decision. The introduction of a company pension fund can be shown to contribute to the viability of the analyzed economic system. However, when credit is incorporated in the model, in place of savings-driven supply side fluctuations in economic activity, investment-driven demand side business cycle fluctuations (of a probably much more volatile type) can take place.

Suggested Citation

  • Asada, Toichiro & Flaschel, Peter & Greiner, Alfred & Proaño, Christian R., 2011. "Sustainable capitalism: Full-employment flexicurity growth with real wage rigidities," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 248-264, March.
  • Handle: RePEc:eee:jeborg:v:77:y:2011:i:3:p:248-264
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    References listed on IDEAS

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    1. Wilthagen, Ton, 1998. "Flexicurity: A new paradigm for labour market policy reform?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 98-202, Social Science Research Center Berlin (WZB).
    2. H. Rose, 1967. "On the Non-Linear Theory of the Employment Cycle," Review of Economic Studies, Oxford University Press, vol. 34(2), pages 153-173.
    3. Torben M. Andersen & Michael Svarer, 2007. "Flexicurity: Labour Market Performance in Denmark," CESifo Economic Studies, CESifo, vol. 53(3), pages 389-429, September.
    4. Rhein, Thomas & Stamm, Melanie, 2006. "Niedriglohnbeschäftigung in Deutschland : deskriptive Befunde zur Entwicklung seit 1980 und Verteilung auf Berufe und Wirtschaftszweige," IAB-Forschungsbericht 200612, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
    6. Groth, Christian & Madsen, Jakob B., 2016. "Medium-term fluctuations and the “Great Ratios” of economic growth," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 149-176.
    7. Flaschel, Peter & Greiner, Alfred, 2009. "Employment cycles and minimum wages. A macro view," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 279-287, December.
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    More about this item

    Keywords

    Flexicurity Employer of first resort Solovian growth Company pension funds Sustainability;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government

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