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Neoclassical Economic Growth and Lifetime Welfare in a Simple OLG Model with Unions

  • Luciano Fanti
  • Luca Gori

We analyse the effects of the introduction of a unionised labour market in a simple Diamond's OLG framework. Interesting findings, so far escaped closer scrutiny, emerge. Under some particular conditions about the key parameters of the model, the unionised-wage economy may perform better than the standard market-clearing wage frame as regards economic growth and the lifetime welfare. We show that wages are set by the monopolistic union as a mark-up over the (constant) unemployment benefit such as tomaximise the long-run stock of capital. Furthermore, given the union's wage, a benevolent government is able to pick up exactly a value of the unemployment bonus such as to obtain a welfare maximum. These resultsmay have important policy implications.

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Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2008/71.

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Date of creation: 01 Jan 2008
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Handle: RePEc:pie:dsedps:2008/71
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