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National labor markets, international factor mobility and macroeconomic instability

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  • Marta Aloi

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  • Teresa Lloyd-Braga

    ()

Abstract

We consider a standard two—country environment, where one of the countries has rigid wages and unemployment, and analyze how factor markets’ integration affects the economy with respect to expectationsdriven fluctuations. We demonstrate that by allowing free capital mobility, indeterminacy is exported to the world economy. If further liberalization is permitted, by allowing free movements of labor, the scope for indeterminacy is reduced and open labor markets may produce a stabilizing effect on the global macroeconomy. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries.
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Suggested Citation

  • Marta Aloi & Teresa Lloyd-Braga, 2010. "National labor markets, international factor mobility and macroeconomic instability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(3), pages 431-456, June.
  • Handle: RePEc:spr:joecth:v:43:y:2010:i:3:p:431-456
    DOI: 10.1007/s00199-009-0445-1
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    Cited by:

    1. Jean-Michel Grandmont, 2016. "Endogenous Procyclicality of Labor Productivity, Employment, Real Wages and Effort in Conditionally Heteroskedastic Sunspots Unemployment Business Cycles with Negishi-Solow Efficiency Wages," Working Papers 2016:10, Department of Economics, University of Venice "Ca' Foscari".
    2. Jean-Michel Grandmont, "undated". "Countercyclical Endogenous Uncertainty Shocks, Efficiency Wages and Procyclical Precautionary Labor Productivity," Working Papers 2017:25, Department of Economics, University of Venice "Ca' Foscari".
    3. repec:bla:ijethy:v:13:y:2017:i:4:p:401-425 is not listed on IDEAS
    4. Kunieda, Takuma & Shibata, Akihisa, 2012. "Financial Globalization and Animal Spirits," MPRA Paper 36123, University Library of Munich, Germany.
    5. Jean-Michel Grandmont, 2008. "Negishi-Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 247-272.
    6. Patrick-Antoine Pintus, 2007. "Procyclical International Capital Flows, Debt Overhang And Volatility," Working Papers halshs-00353596, HAL.

    More about this item

    Keywords

    Indeterminacy; Globalization; Factor movements; Efficiency wages; F20; F15; E32; E24;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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