Growth, unemployment and heterogeneity

Piero Ferri, Annalisa Cristini and Anna Maria Variato ()
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Piero Ferri: University of Bergamo
Anna Maria Variato: University of Bergamo

Journal of Economic Interaction and Coordination, 2019, vol. 14, issue 3, No 7, 573-593

Abstract: Abstract The paper analyzes unemployment in a medium-run growth model, where aggregate demand and supply interact, using a top-down approach. The aim of the essay is the study of a nonlinear system where both aggregate demand and supply are endogenous and generate bounded unemployment, followed by a methodological effort direct to identify possible lines of convergence with the agent based models (ABM) approach. This is a by-product of the presence of heterogeneity in the model. Heterogeneity acts through two different channels and operates among class of agents: it comes into the aggregate consumption function where households are assumed employed or unemployed; it changes the learning process of pessimists and optimists. The analysis is carried on through simulations. The resulting system is fairly stable to changes in main structural parameters. On one hand, autonomous demand drives the dynamics of the system, while heterogeneity in the consumption function, due to the presence of unemployment, strengthens the links with supply aspects. On the other hand, both the rate of growth of labor productivity and labor supply are endogenous. Two major results are obtained. First, unemployment allows the so called Harrodian reconciliation between aggregate demand and supply. Second, unemployment remains bounded meaning that the interaction between aggregate demand and supply thwarts instability. These results are in keeping with those obtained by means of a bottom-up approach, typical of ABM. Possible explanations and implications of this convergence are put forward and open the venue to further deepening of complementarities among the two modeling strategies.

Keywords: Bounded unemployment; Medium-run growth; Endogenous supply; Heterogeneity; Instability; Learning; Top-down and bottom-up methodologies (search for similar items in EconPapers)
JEL-codes: E12 E32 J2 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11403-019-00244-7

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