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Bargaining over Productivity and Wages when Technical Change is Induced: Implications for Growth, Distribution and Employment

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  • Daniele Tavani

    () (Department of Economics, New School for Social Research)

Abstract

In a simple one-sector economy operating at full capacity, workers and firms bargain a la Nash (1950) over wages and productivity gains taking into account the trade-offs faced by firms in choosing factor-augmenting technolo- gies. The aggregate environment that arises from self-interested behavior by economic agents, thus producing decision rules on wages, productivity gains, savings and investment, is described by a two-dimensional dynamical system in the employment rate and output/capital ratio. The economy converges cyclically to a long-run equilibrium involving a Harrod-neutral profile of tech- nical change, a constant rate of employment of labor, and constant input shares. The type of oscillations predicted by the model is qualitatively consis- tent with the available data on the United States (1963-2003), replicates the dynamics found in earlier models of growth cycles such as Goodwin (1967), Shah and Desai (1981), van der Ploeg (1987), and is verified numerically in simulations. Institutional change, as captured by variations in workers’ bar- gaining power, has a positive effect on the rate of growth of output per worker but a negative effect on employment. Economic policy can also affect the growth and distribution pattern through changes in unemployment compen- sations, which also have a positive impact on labor productivity growth but a negative impact on employment.

Suggested Citation

  • Daniele Tavani, 2011. "Bargaining over Productivity and Wages when Technical Change is Induced: Implications for Growth, Distribution and Employment," Working Papers 1103, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1103
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Daniele Tavani & Luca Zamparelli, 2017. "Endogenous Technical Change In Alternative Theories Of Growth And Distribution," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1272-1303, December.
    2. Daniele Tavani & Luca Zamparelli, 2016. "Distributive Conflict, Growth, and the ‘Entrepreneurial State’," Working Papers 6/16, Sapienza University of Rome, DISS.
    3. Rudiger von Arnim & Jose Barrales, 2015. "Demand-driven Goodwin cycles with Kaldorian and Kaleckian features," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 351-373, July.
    4. Daniele Tavani & Peter Flaschel & Lance Taylor, 2011. "Estimated non-linearities and multiple equilibria in a model of distributive-demand cycles," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(5), pages 519-538, October.

    More about this item

    Keywords

    Goodwin Growth Cycle; Bargaining; Induced Technical Change; Factor Shares; Employment;

    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
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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