Working Paper: CEPR ID: DP4679
Authors: Teresa Lloyd-Braga; Leonor Modesto
Abstract: We introduce labour market imperfections (i.e. unions and the existence of a wage floor) in a finance-constrained monetary economy with heterogenous agents and increasing returns to scale due to labour and capital productive externalities. We find that indeterminacy emerges for empirically plausible values of the parameters, compatible with a downward-sloping marginal productivity of labour curve. Moreover, we show that indeterminacy and Hopf bifurcations are possible with an (arbitrarily) small degree of (total) externalities provided that the share of labour externalities exceed a lower bound, which decreases with union power. We also find that unions increase simultaneously steady-state employment, capital accumulation and welfare if the marginal productivity of labour is decreasing in employment.
Keywords: bifurcations; externalities; indeterminacy; unions
JEL Codes: D60; D62; E32; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| union power (J51) | employment (J68) |
| union power (J51) | capital accumulation (E22) |
| union power (J51) | welfare (I38) |
| labor externalities (J49) | employment (J68) |
| labor externalities (J49) | capital accumulation (E22) |
| labor externalities (J49) | welfare (I38) |