Wage inequality as a source of endogenous macroeconomic fluctuations

Jaylson Silveira () and Gilberto Lima

Structural Change and Economic Dynamics, 2021, vol. 56, issue C, 35-52

Abstract: There is extensive evidence on both the endogeneity of labor productivity to the wage remuneration and the persistence of wage inequality across observationally similar workers and firms. The paper builds an evolutionary micro-dynamic model having these two features of the labor market as interconnected, and explores the ensuing implications for the macro-dynamics of the distribution of income, capacity utilization and output growth. Firms periodically revise (and possibly switch) their choice of remunerating workers with a higher or lower wage, and the resulting labor productivity differential across workers is endogenous to the distribution of wage remuneration strategies across firms. The long run features wage inequality as a persistent outcome. Plausibly low levels of wage inequality cause the distribution of wage remuneration strategies across firms, and therefore the functional distribution of income, capacity utilization and output growth, all to experience self-sustaining cyclical fluctuations. Interestingly, the level of wage inequality is a bifurcation dimension.

Keywords: Wage inequality; Evolutionary micro-dynamics; Distribution of income; Capacity utilization; Output growth (search for similar items in EconPapers)
JEL-codes: C62 E25 E32 J31 O41 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Wage Inequality as a Source of Endogenous Macroeconomic Fluctuations (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:56:y:2021:i:c:p:35-52

DOI: 10.1016/j.strueco.2020.07.009

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