Endogenous fluctuations in unionized economies with productive externalities

Abstract

We discuss the effects of unions on steady-state multiplicity and welfare, and on the existence of endogenous fluctuations. We consider an OG economy with productive capital externalities and we focus on underemployment equilibria. We find that for wide regions in the parameter space, including an arbitrarily small degree of externalities and a Cobb-Douglas technology, unions increase steady state employment and welfare, and local indeterminacy (sunspots) emerges. Moreover with a CES technology multiplicity of steady states is only possible in the presence of unions. Our results also show that the role of unions in shaping local dynamics and bifurcations depends on technology (externalities and factor’s substitutability). Copyright Springer-Verlag Berlin/Heidelberg 2005Unions, Local indeterminacy and bifurcations, Steady-state welfare, Capital externalities.,

Indeterminacy in a finance constrained unionized economy

“…The results on the effects of unions here obtained for a Woodford model, together with those obtained in Coimbra et al (2005) for an OG model, show that unions influence, in a relevant way, welfare and the emergence of endogenous business cycles.…”

“…Let us now compare our results with those obtained in Coimbra et al (2005) for an OG framework without current consumption and capital externalities only, where capital accumulation is, in contrast to the Woodford framework, driven by the wage bill. In both papers union power can be welfare improving, and can lead to an increase in employment and capital.…”

“…4 We also analyze how unions influence the levels of employment, capital and welfare at the steady state solution. Coimbra et al (2005), using an overlapping generations (OG) model with capital externalities, indivisible labor and no current consumption, found that an increase in union power increases the levels of capital, employment, and welfare at the steady state, under certain configurations of parameters including arbitrarily small externalities and a Cobb-Douglas technology. This result is however not completely surprising, since in OG economies savings and capital accumulation are driven by the wage bill, which tends to be higher under union power.…”

Non-linear endogenous fluctuations with free entry and variable markups

“…4 Existence of multiple steady states is then analyzed from a global point of view, by considering a nonlinear parameterized version of the model. 1 For an approach of endogenous fluctuations in overlapping generations economies with imperfectly competitive labor markets see, for instance, Jacobsen (2000) and Coimbra et al (2002).…”

Unemployment, Growth, and Fiscal Policy: New Insights on the Hysteresis Hypothesis

“…The solution to the dynasty maximization problem is characterized by the growth rate of consumption per capita 10) and the transversality condition…”