Indeterminacy in a Finance Constrained Unionized Economy

Leonor Modesto and Teresa Lloyd-Braga

No 4679, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We introduce labour market imperfections (i.e. unions and the existence of a wage floor) in a finance-constrained monetary economy with heterogenous agents and increasing returns to scale due to labour and capital productive externalities. We find that indeterminacy emerges for empirically plausible values of the parameters, compatible with a downward-sloping marginal productivity of labour curve. Moreover, we show that indeterminacy and Hopf bifurcations are possible with an (arbitrarily) small degree of (total) externalities provided that the share of labour externalities exceed a lower bound, which decreases with union power. We also find that unions increase simultaneously steady-state employment, capital accumulation and welfare if the marginal productivity of labour is decreasing in employment.

Keywords: Indeterminacy; Bifurcations; Externalities; Unions (search for similar items in EconPapers)
JEL-codes: D60 D62 E32 J51 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (7)

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Journal Article: Indeterminacy in a finance constrained unionized economy (2007)
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