Employment Dynamics and Redistributive Policies under Workers' Social Norms
Rodolphe Dos Santos Ferreira (),
Teresa Lloyd-Braga () and
Leonor Modesto ()
No 7888, IZA Discussion Papers from Institute of Labor Economics (IZA)
We study employment dynamics using an OLG model with unemployment benefits and universal old-age survival pensions, both financed by taxing employed workers. The novelty is that we explicitly introduce workers' social norms that shape both the individual participation decision of workers and wage bargaining. We find that social norms increase the likelihood of multiplicity of equilibria and somewhat facilitate the emergence of indeterminacy and flip bifurcations, constituting therefore a source of business cycles driven by self-fulfilling volatile expectations, i.e. sunspots. We also find that, in the presence of strong social norms, standard policy recommendations that advocate a decrease in unemployment benefits in order to boost employment are no longer valid. Indeed, our simulation results show that the opposite will happen for empirically plausible levels of the unemployment rate.
Keywords: flip bifurcations; local indeterminacy; steady state multiplicity; sunspots; workers' social norms; unemployment benefits (search for similar items in EconPapers)
JEL-codes: E32 H23 H31 J65 (search for similar items in EconPapers)
Pages: 26 pages
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published as "The destabilizing effects of the social norm to work under a social security system" in Mathematical Social Sciences, 2015, 76, 64-72
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp7888
Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Access Statistics for this paper
More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().