The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining
Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and commodity prices. A typical microfoundation recurs to wage bargaining in the labour markets and monopolistic competition in the commodity markets (e.g. Blanchard/Giavazzi). A characteristic feature of those models is that deregulating the labour markets (i.e. reducing the bargaining power of workers and/or reducing the unemployment benefits) increases equilibrium employment; in a symmetric way, deregulating the commodity markets (i.e. reducing the market power of commodity suppliers) increases equilibrium employment as well. However, those models are typically static models which do not specify explicitly the economic process in time. In the following paper, we develop a dynamic macroeconomic model in which commodity markets are characterised by monopolistic competition and labour markets by wage bargaining. In this first version, the number of firms is fixed. The incorporation of firm entry and exit is left for further research. In our analysis the usual equilibrium solution is a fixed point of the dynamic model which exhibits the usual comparative static properties (deregulating the labour and/or the commodity market increases employment). However, depending upon the parameters the fixed point may loose stability through a Flip-bifurcation giving rise to cyclical solutions. We show that commodity and labour market deregulation may lead to instability and lower average employment. This result, valid in a dynamic framework, contrasts with the usual comparative static properties.
(This abstract was borrowed from another version of this item.)
|Date of creation:||May 2003|
|Contact details of provider:|| Postal: Niels Bohrs Vej 9, 6700 Esbjerg|
Phone: +45 6550 2233
Fax: +45 6550 1090
Web page: http://degit.sam.sdu.dk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lars Calmfors & Åsa Johansson, 2001. "Unemployment Benefits, Contract Length and Nominal Wage Flexibility," CESifo Working Paper Series 514, CESifo Group Munich.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, July.
- Olivier Blanchard & Francesco Giavazzi, 2003.
"Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 118(3), pages 879-907.
- Olivier Blanchard & Francesco Giavazzi, "undated". "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
- Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
- Calmfors, Lars & Johansson, Åsa, 2001. "Unemployment Benefits, Contract Length And Nominal Wage Flexibility," Seminar Papers 692, Stockholm University, Institute for International Economic Studies.
- Nicola GIAMMARIOLI & Julian MESSINA & Thomas STEINBERGER & Chiara STROZZI, 2002. "European Labor Share Dynamics: An Institutional Perspective," Economics Working Papers ECO2002/13, European University Institute. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:deg:conpap:c008_024. 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: (Jan Pedersen)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.