DUAL LABOR MARKET AND ENDOGENOUS FLUCTUATIONS

Francesco de Palma and Thomas Seegmuller

Macroeconomic Dynamics, 2005, vol. 9, issue 3, 398-411

Abstract: We study the influence of wage differential on the emergence of endogenous fluctuations. In this way, we introduce a dual labor market, based on the Shapiro–Stiglitz efficiency wage theory in an overlapping generations model. We show that wage inequality is a source of endogenous fluctuations. Indeed, a sufficiently strong wage differential leads to the occurrence of cycles of period 2 and local indeterminacy. Moreover, in contrast to several existing contributions, these results depend neither on increasing returns to scale nor on the degree of capital–labor substitution.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:9:y:2005:i:03:p:398-411_04

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