The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining

Pasquale Commendatore and Ingrid Kubin ()

No 85, Department of Economics Working Paper Series from WU Vienna University of Economics and Business

Abstract: Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and commodity prices. A widely used conceptual framework is specifying a wage-setting and a price setting equation, while a more explicit microfoundation recurs to wage bargaining in the labour markets and monopolistic competition in the commodity markets; (Blanchard and Giavazzi, 2001). Characteristic for those approaches is that deregulating the labour markets (i.e. reducing the bargaining power of workers and/or reducing the unemployment benefits) and/or deregulating the commodity markets (i.e. reducing the market power of commodity suppliers) increases equilibrium employment. However, those models are typically static models which do not specify explicitly the economic process in time. In the following paper, we develop a dynamic macroeconomic model in which commodity markets are characterised by monopolistic competition and labour markets by wage bargaining. The number of firms is fixed; the incorporation of firm entry and exit is left for further research. In our analysis the equilibrium solution is a fixed point of the dynamic model which exhibits the usual comparative static properties (deregulating the labour and/or the commodity market increases employment). However, depending upon the parameters the fixed point may loose stability through a Flip-bifurcation giving rise to cyclical solutions. We show analytically that commodity and labour market deregulation may lead to instability; in numerical simulation we even found cases in which deregulation leads to lower average employment. Both results, valid in a dynamic framework, contrast with the usual comparative static properties.

Keywords: monopolistische Konkurrenz; Tarifverhandlung; makroökonomisches Modell (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://epub.wu.ac.at/982/ original version (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (https://epub.wu.ac.at/982/ [308 PERMANENT REDIRECT]--> https://epub.wu.ac.at/id/eprint/982 [302 FOUND]--> https://research.wu.ac.at/en/publications/ea681828-1822-4811-a84f-f5a9663cc780)

Related works:
Working Paper: The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining (2003)
Working Paper: The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining (2003)
Working Paper: The dynamics of wages and employment in a model of monopolistic competition and efficient bargaining
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wiw:wus005:982

Access Statistics for this paper

More papers in Department of Economics Working Paper Series from WU Vienna University of Economics and Business Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by WU Library ().