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

Commendatore, Pasquale and Kubin, Ingrid (2003) The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining. Department of Economics Working Paper Series, 85. Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.

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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. (author's abstract)

Item Type: Paper
Keywords: monopolistische Konkurrenz / Tarifverhandlung / makroökonomisches Modell
Classification Codes: JEL E1
Divisions: Departments > Volkswirtschaft
Depositing User: Repository Administrator
Date Deposited: 17 Jun 2003 11:23
Last Modified: 08 Jun 2011 13:23
WU Online Catalog: http://onlinekatalog.wu.ac.at/F?func=find-b&reques...
URI: http://epub.wu.ac.at/id/eprint/982

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