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Unions, Increasing Returns and Endogenous Fluctuations


  • Coimbra, Rui

    (Universidade Catolica Portuguesa, Lisbon)

  • Lloyd-Braga, Teresa

    () (Católica Lisbon)

  • Modesto, Leonor

    () (Universidade Catolica Portuguesa, Lisbon)


We analyse the implications of unions (efficient bargaining) for multiplicity of stationary states and welfare, local indeterminacy, bifurcations and endogenous fluctuations (deterministic and stochastic). We use an overlapping generations model with external increasing returns to scale, where capital is the unique asset. We find that a slight increase in unions power may increase the levels of capital, employment and the welfare of all agents at the steady state. However multiple steady states may exist. Moreover, our results show that increasing returns to scale are a necessary condition for the emergence of deterministic endogenous fluctuations. However, we find that union’s bargaining power can dramatically influence the local stability of the system. In fact, while an increase in the bargaining power of unions reduces the scope for local indeterminacy, the emergence of endogenous fluctuations, through Hopf bifurcations may become more likely when unions are present. Therefore, if the relevant trajectory exhibits endogenous fluctuations, steady state welfare is no longer the unique important element from a social point of view. In this case, whether unions are ‘good’ institutions or not may well depend on the trade off between efficiency and intergenerational equity that society is willing to take.

Suggested Citation

  • Coimbra, Rui & Lloyd-Braga, Teresa & Modesto, Leonor, 2000. "Unions, Increasing Returns and Endogenous Fluctuations," IZA Discussion Papers 229, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp229

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    Cited by:

    1. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2006. "Unemployment, Growth, And Fiscal Policy: New Insights On The Hysteresis Hypothesis," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 285-316, June.
    2. De Palma, Francesco & Seegmuller, Thomas, 2005. "Dual Labor Market And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 9(03), pages 398-411, June.
    3. Andreas Wagener, 2003. "Equilibrium dynamics with different types of pay-as-you-go pension schemes," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-12.
    4. repec:ebl:ecbull:v:8:y:2003:i:6:p:1-12 is not listed on IDEAS

    More about this item


    Unions; endogenous fluctuations; increasing returns;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities


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