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Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations

  • Koskela, Erkki

    ()

    (University of Helsinki)

  • Puhakka, Mikko

    ()

    (University of Oulu)

Registered author(s):

    We analyze the stability and dynamics of an overlapping generations model with imperfectly competitive labour markets. By focusing on the right-to-manage wage bargaining we assume that wage is negotiated after the capital stock decision. With Cobb-Douglas utility and production functions the steady state is unique and the steady state capital stock depends positively both on the trade union’s bargaining power and on the wage elasticity of labour demand. That elasticity depends either on lower decreasing returns to scale and/or more intensive product market competition. Finally, we show that the steady state equilibrium is a saddle.

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    File URL: http://ftp.iza.org/dp3246.pdf
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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3246.

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    Length: 21 pages
    Date of creation: Dec 2007
    Date of revision:
    Handle: RePEc:iza:izadps:dp3246
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    1. Simon Anderson & Michael Devereux, 1985. "Trade Unions and the Choice of Capital Stock," Working Papers 600, Queen's University, Department of Economics.
    2. Rodolphe Dos Santos Ferreira & Teresa Lloyd-Braga, 2002. "Can market power sustain endogenous growth in overlapping-generations economies?," Economic Theory, Springer, vol. 20(1), pages 199-205.
    3. Spector, David, 2004. "Competition and the capital-labor conflict," European Economic Review, Elsevier, vol. 48(1), pages 25-38, February.
    4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    5. Lloyd-Braga, Teresa & Modesto, Leonor, 2004. "Indeterminacy in a Finance Constrained Unionized Economy," CEPR Discussion Papers 4679, C.E.P.R. Discussion Papers.
    6. De Palma, Francesco & Seegmuller, Thomas, 2004. "Unions, wage differential and indeterminacy," Research in Economics, Elsevier, vol. 58(3), pages 205-218, September.
    7. Rocheteau, Guillaume, 1999. "Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 399-409, July.
    8. repec:cup:cbooks:9780521001151 is not listed on IDEAS
    9. Egger, Hartmut & Egger, Peter, 2005. "Labor market effects of outsourcing under industrial interdependence," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 349-363.
    10. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
    11. Michael B. Devereux & Ben Lockwood, 1989. "Trade Unions, Non-Binding Wage Agreements, and Capital Accumulation," Working Papers 743, Queen's University, Department of Economics.
    12. 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.
    13. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
    14. Rui Coimbra & Teresa Lloyd-Braga & Leonor Modesto, 2005. "Endogenous fluctuations in unionized economies with productive externalities," Economic Theory, Springer, vol. 26(3), pages 629-649, October.
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