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National Labour Markets, International Factor Mobility and Macroeconomic Instability

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  • Aloi, Marta
  • Lloyd-Braga, Teresa

Abstract

We analyze how global economic integration of factor markets affects the stability of the macroeconomy, with respect to expectations-driven fluctuations, when countries differ in their labor market institutions. It is shown that, due to the occurrence of equilibrium indeterminacy, liberalization of capital movements is likely to be accompanied by persistent fluctuations at the world level, while allowing also for labor movements may bring macroeconomic stability. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries. If the average firm size in a country operating under perfect competition and full employment is small relative to a country with rigid wages and unemployment, then free migration reduces unemployment, narrows wage differentials and expands world output.

Suggested Citation

  • Aloi, Marta & Lloyd-Braga, Teresa, 2006. "National Labour Markets, International Factor Mobility and Macroeconomic Instability," CEPR Discussion Papers 6015, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6015
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    References listed on IDEAS

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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," Discussion Paper Series DP2016-14, Research Institute for Economics & Business Administration, Kobe University.
    2. 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," Discussion Paper Series DP2016-14, Research Institute for Economics & Business Administration, Kobe University.
    3. 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".
    4. repec:bla:ijethy:v:13:y:2017:i:4:p:401-425 is not listed on IDEAS
    5. Jean-Michel Grandmont, 2017. "Countercyclical Endogenous Uncertainty Shocks, Efficiency Wages and Procyclical Precautionary Labor Productivity," Discussion Paper Series DP2017-32, Research Institute for Economics & Business Administration, Kobe University.
    6. Kunieda, Takuma & Shibata, Akihisa, 2012. "Financial Globalization and Animal Spirits," MPRA Paper 36123, University Library of Munich, Germany.
    7. Jean-Michel Grandmont, 2006. "Negishi-Solow Efficiency Wages, Unemployment Insurance and Dynamic Deterministic Indeterminacy," Working Papers 2006-16, Center for Research in Economics and Statistics.
    8. Patrick-Antoine Pintus, 2007. "Procyclical International Capital Flows, Debt Overhang And Volatility," Working Papers halshs-00353596, HAL.
    9. Jean-Michel Grandmont, 2016. "Countercyclical Endogenous Uncertainty Shocks, Efficiency Wages and Procyclical Precautionary Labor Productivity," Working Papers 2017-12, Center for Research in Economics and Statistics, revised 01 Mar 2016.
    10. 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, pages 247-272.

    More about this item

    Keywords

    fluctuations driven by self fulfilling expectations; indeterminacy; international capital movements; international labour movements; unemployment;

    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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