Labor, Ambiguity, and Stability

Sara Biadetti (), Lorenzo Carbonari and Filippo Maurici ()
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Sara Biadetti: Università di Roma “Tor Vergata”, Italy
Filippo Maurici: Department of Political Sciences, Università Roma Tre, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper explores the effect of forward-looking ambiguity (Knightian uncertainty) on labor share distribution within a macro-development model involving entrepreneurs who are heterogeneous in productivity and wealth, and homogeneous saving workers. Ambiguity-averse agents base their decisions on worst-case labor share forecasts. As workers' expectations dominate, an endogenous hedging distribution emerges. The presence of ambiguity affects stability and induces cyclical fluctuations in labor supply, wages, and production, thereby amplifying short-term economic cycles. Capital over-accumulation arises as workers save more to hedge against uncertainty. Over time, persistent ambiguity leads to capital misallocation, reducing entrepreneurial assets while boosting aggregate capital.

Keywords: ambiguity; Knightian uncertainty; heterogeneity; labor share; development (search for similar items in EconPapers)
JEL-codes: D81 D84 E22 G14 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-dge, nep-ent and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:24-18

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