Can underemployment persist in an expanding economy? Clues from a non-Walrasian OLG model with endogenous longevity
This paper aims at casting a new light on the persistence of underemployment in emerging economies, by examining the relationship between labour market imperfections and longevity changes. For that purpose, we develop a two-period OLG model where longevity depends positively on the real wage, but negatively on the underemployment level, which both result from wage negotiations between a trade-union, representing workers (i.e. young generation), and the management, representing capital-holders (i.e. old generation). The existence, uniqueness and stability of a non-trivial steady-state equilibrium are studied. The distribution of bargaining power is shown to be a major determinant of the short run and long run dynamics of employment, production and longevity. The dynamics is also shown to be significantly sensitive to the precise form under which job quality affects longevity.
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