Eluding the Predators: The Goodwin Cycle with Workforce Precarization in Japan

This paper examines the implications of introducing non-regular workers, typically characterized by limited wage bargaining power, into the Goodwin cyclical growth framework, and applies the extended model to the Japanese data. Analytically, we incorporate this duality by adding a third dynamic equation to the original two-dimensional Goodwin system, assuming that firms turn to this secondary workforce to offset upward pressure on the wage share during periods of labor market tightness. The resulting three-dimensional system is studied empirically, analytically, and numerically. This threefold analysis reveals that the introduction of secondary workers substantially modifies the dynamics of class conflict and, under certain conditions, replaces the Goodwin limit cycle with a convergent equilibrium. Our empirical estimates suggest that Japanese firms' hiring behavior is consistent with the convergent regime. However, adjustment frictions in the composition of employment may slow the reallocation of workers across contract types, preventing convergence and allowing the economy to remain on the Goodwin limit cycle.