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The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining

Author

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  • Pasquale Commedatore

    (Dipartimento di Teoria Economica e Applicazioni, Università di Napoli ‘Federico II’)

  • Ingrid Kubin

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and commodity prices. A widely used conceptual framework is specifying a wage-setting and a price setting equation, while a more explicit microfoundation recurs to wage bargaining in the labour markets and monopolistic competition in the commodity markets; (Blanchard and Giavazzi, 2001). Characteristic for those approaches is that deregulating the labour markets (i.e. reducing the bargaining power of workers and/or reducing the unemployment benefits) and/or deregulating the commodity markets (i.e. reducing the market power of commodity suppliers) increases equilibrium employment. However, those models are typically static models which do not specify explicitly the economic process in time. In the following paper, we develop a dynamic macroeconomic model in which commodity markets are characterised by monopolistic competition and labour markets by wage bargaining. The number of firms is fixed; the incorporation of firm entry and exit is left for further research. In our analysis the equilibrium solution is a fixed point of the dynamic model which exhibits the usual comparative static properties (deregulating the labour and/or the commodity market increases employment). However, depending upon the parameters the fixed point may loose stability through a Flip-bifurcation giving rise to cyclical solutions. We show analytically that commodity and labour market deregulation may lead to instability; in numerical simulation we even found cases in which deregulation leads to lower average employment. Both results, valid in a dynamic framework, contrast with the usual comparative static properties.

Suggested Citation

  • Pasquale Commedatore & Ingrid Kubin, 2003. "The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining," Department of Economics Working Papers wuwp085, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp085
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    References listed on IDEAS

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    1. Pasquale Commendatore & Ingrid Kubin, "undated". "The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining," Modeling, Computing, and Mastering Complexity 2003 03, Society for Computational Economics.
    2. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
    3. Lars Calmfors & Åsa Johansson, 2001. "Unemployment Benefits, Contract Length and Nominal Wage Flexibility," CESifo Working Paper Series 514, CESifo.
    4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
    5. Calmfors, Lars & Johansson, Åsa, 2001. "Unemployment Benefits, Contract Length And Nominal Wage Flexibility," Seminar Papers 692, Stockholm University, Institute for International Economic Studies.
    6. Nicola GIAMMARIOLI & Julian MESSINA & Thomas STEINBERGER & Chiara STROZZI, 2002. "European Labor Share Dynamics: An Institutional Perspective," Economics Working Papers ECO2002/13, European University Institute.
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    Cited by:

    1. Gerlinde Fellner & Matthias Sutter, 2009. "Causes, Consequences, and Cures of Myopic Loss Aversion – An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 119(537), pages 900-916, April.
    2. Hagemann, Harald, 2010. "L. Albert Hahn's Economic Theory of Bank Credit," Department of Economics Working Paper Series 134, WU Vienna University of Economics and Business.
    3. Engelbert Stockhammer & Paul Ramskogler, 2009. "Post-Keynesian economics How to move forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(2), pages 227-246.
    4. Theresa Grafeneder-Weissteiner, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Papers wuwp132, Vienna University of Economics and Business, Department of Economics.
    5. Grafeneder-Weissteiner, Theresa & Prettner, Klaus, 2010. "Agglomeration processes in aging societies," Department of Economics Working Paper Series 131, WU Vienna University of Economics and Business.
    6. Riedl, Aleksandra & Rocha-Akis, Silvia, 2007. "Testing the tax competition theory: How elastic are national tax bases in western Europe?," Department of Economics Working Paper Series 112, WU Vienna University of Economics and Business.
    7. Engelbert Stockhammer & Lucas Grafl, 2010. "Financial Uncertainty and Business Investment," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 551-568.
    8. Pasquale Commendatore & Ingrid Kubin, "undated". "The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining," Modeling, Computing, and Mastering Complexity 2003 03, Society for Computational Economics.
    9. Paul Ramskogler, 2007. "Uncertainty, market power and credit rationing," Department of Economics Working Papers wuwp105, Vienna University of Economics and Business, Department of Economics.
    10. Annemarie Steidl & Engelbert Stockhammer, 2007. "Coming and leaving. Internal mobility in late Imperial Austria," Department of Economics Working Papers wuwp107, Vienna University of Economics and Business, Department of Economics.
    11. Eckhard Hein, 2010. "Shareholder Value Orientation, Distribution And Growth—Short‐ And Medium‐Run Effects In A Kaleckian Model," Metroeconomica, Wiley Blackwell, vol. 61(2), pages 302-332, May.
    12. Grafeneder-Weissteiner, Theresa & Prettner, Klaus, 2009. "Agglomeration and population aging in a two region model of exogenous growth," Department of Economics Working Paper Series 125, WU Vienna University of Economics and Business.
    13. Engelbert Stockhammer & Paul Ramskogler, 2008. "Uncertainty and Exploitation in History," Journal of Economic Issues, Taylor & Francis Journals, vol. 42(1), pages 175-194, March.
    14. Aleksandra Riedl & Silvia Rocha-Akis, 2008. "Testing the tax competition theory: How elastic are national tax bases in Western Europe?," Working Papers 142, Oesterreichische Nationalbank (Austrian Central Bank).
    15. Silvia Rocha-Akis, 2006. "Labour tax policies and strategic offshoring under unionised oligopoly," Department of Economics Working Papers wuwp099, Vienna University of Economics and Business, Department of Economics.
    16. Harald Badinger & Ingrid Kubin, 2007. "Vom kurzfristigen zum mittelfristigen Gleichgewicht in einer offenen Volkswirtschaft unter fixen und flexiblen Wechselkursen," Department of Economics Working Papers wuwp101, Vienna University of Economics and Business, Department of Economics.
    17. Grafeneder-Weissteiner, Theresa, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Paper Series 132, WU Vienna University of Economics and Business.
    18. Currie, Martin & Kubin, Ingrid, 2005. "Fixed price dynamics versus flexible price dynamics," Department of Economics Working Paper Series 89, WU Vienna University of Economics and Business.
    19. Pasquale Commendatore & Ingrid Kubin & Carmelo Petraglia, 2009. "Footloose Capital and Productive Public Services," Chapters, in: Neri Salvadori & Pasquale Commendatore & Massimo Tamberi (ed.), Geography, Structural Change and Economic Development, chapter 1, Edward Elgar Publishing.
    20. Grandner, Thomas, 2007. "Product differentiation in a linear city and wage bargaining," Department of Economics Working Paper Series 109, WU Vienna University of Economics and Business.
    21. Özlem Onaran, 2007. "International financial markets and fragility in the Eastern Europe: "can it happen" here?," Department of Economics Working Papers wuwp108, Vienna University of Economics and Business, Department of Economics.
    22. Smet, Koen, 2007. "Stuck in the middle? The structure of trade between South Africa and its major trading partners," Department of Economics Working Paper Series 115, WU Vienna University of Economics and Business.
    23. Figerl, Jürgen & Grandner, Thomas, 2008. "Job quality and wages in duopsony," Department of Economics Working Paper Series 121, WU Vienna University of Economics and Business.

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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