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Wage bargaining and induced technical change in a linear economy: Model and application to the US (1963–2003)

Daniele Tavani

Structural Change and Economic Dynamics, 2012, vol. 23, issue 2, 117-126

Abstract: In a simple one-sector, two-class, fixed-proportions economy operating at full capacity, wages are set through generalized axiomatic bargaining à laNash (1950). As for choice of technology, firms choose the direction of factor-augmenting innovations to maximize the rate of unit cost reduction (Kennedy, 1964; Funk, 2002). The aggregate environment resulting by self-interested decisions made by economic agents is described by a two-dimensional dynamical system in the employment rate and output/capital ratio. The economy converges cyclically to a long-run equilibrium involving a Harrod-neutral profile of technical change, a constant rate of employment of labor, and constant input shares. The type of oscillations predicted by the model matches qualitatively the available data on the United States (1963–2003). Institutional change, as captured by variations in workers’ bargaining power, has a positive effect on the rate of output growth but a negative effect on employment.

Keywords: Bargaining; Induced technical change; Factor shares; Employment (search for similar items in EconPapers)
JEL-codes: E24 E25 J52 O31 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Wage Bargaining and Induced Technical Change in a Linear Economy: Model and Application to the US (1963-2003) (2009) Downloads
Working Paper: Wage Bargaining and Induced Technical Change in a Linear Economy: Model and Application to the US (1963-2003) (2009) Downloads
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