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'Backyard' technology and regulated wages in a neoclassical OLG growth model

Luciano Fanti () and Luca Gori ()

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: This paper formally explores the joint roles played, on the one side, by the regulation of wages and, on the other side, by the existence of a "backyard" (or home) technology exploited by the unemployed people, in a standard neoclassical OLG growth model. The main findings are the following: 1) the introduction of a "binding" regulated wage fosters the capital accumulation and lead to a higher long term capital stock (and thus to higher output and welfare as well) in comparison with a competitive wage economy, provided that both the labour productivity at "home" and the capital weight in the firms technology are sufficiently high; 2) however, if the regulated wage is set at a too high level, the capital accumulation will be inferior to that of the competitive wage economy. These results, so far escaped closer scrutiny by economic growth literature, shed a new light on the effects of the regulation of wages and may have interesting policy implications.

Keywords: Regulated wage; Unemployment; Home production; OLG model (search for similar items in EconPapers)
JEL-codes: D13 E24 J22 O41 (search for similar items in EconPapers)
Date: 2008-09-01
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Note: ISSN 2039-1854
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Handle: RePEc:pie:dsedps:2008/74