IDEAS home Printed from
   My bibliography  Save this article

Economic growth and the employer of last resort: A simple model of flexicurity capitalism


  • Greiner, Alfred
  • Flaschel, Peter


This paper presents a model of economic growth with unemployment due to labor market rigidities. The economy consists of a firm that maximizes profits, of a government and of two types of households that maximize inter-temporal utility. One household supplies skilled labor at the first labor market, the other household supplies simple labor at the second labor market. The government in the economy raises taxes and uses its revenues to employ labor receiving unemployment benefits, to finance transfers to the household in the second labor market and to finance public spending. We analyze both the version with exogenous growth as well as an endogenous growth variant, where growth is made endogenous by assuming positive externalities of capital. The exogenous growth model is characterized by global determinacy while it is locally indeterminate. The endogenous growth model can be globally indeterminate with the high balanced growth path being locally indeterminate and the low balanced growth path being locally determinate. We also study how taxation and how the speed of the wage adjustment affect the economy.

Suggested Citation

  • Greiner, Alfred & Flaschel, Peter, 2009. "Economic growth and the employer of last resort: A simple model of flexicurity capitalism," Research in Economics, Elsevier, vol. 63(2), pages 102-113, June.
  • Handle: RePEc:eee:reecon:v:63:y:2009:i:2:p:102-113

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    3. Greiner, Alfred & Rubart, Jens & Semmler, Willi, 2004. "Economic growth, skill-biased technical change and wage inequality: A model and estimations for the US and Europe," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 597-621, December.
    Full references (including those not matched with items on IDEAS)


    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:eee:reecon:v:63:y:2009:i:2:p:102-113. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.