Growth, real interest, employment and wage determination

Bonatti, Luigi (1999) Growth, real interest, employment and wage determination. UNSPECIFIED. (Unpublished)

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    Abstract

    Structurally similar economies sharing the same wage-setting institutions tend to grow at the same rate, thus preserving their differences in levels of output per capita and employment rate, if the value of the workers’ outside options is rigid and equal across economies. In this case, i) multiple balanced growth paths can be possible, ii) the sustainable rate of growth is higher in economies with competitive wage determination than it is in unionized economies, and iii) this growth differential becomes larger in the presence of an integrated capital market. As the workers’ outside option depends on fiscal transfers responding to changes in levels of output and employment, there is convergence in levels across structurally and institutionally similar economies. In this case, i) economies with competitive wage setting converge at higher levels of output per capita and employment rate than do unionized economies, ii) economies with the same wage-setting institutions converge at higher levels if the tax rate and the fiscal transfers in favour of the jobless are reduced, and iii) the steady-state (“natural”) rate of employment characterizing a regional economy is higher—other things being equal—the lower is the steady-state rate of employment of the other region, when a central government pays equal benefits to all jobless households living in this two-region economy.

    Item Type: Departmental Technical Report
    Department or Research center: Economics
    Subjects: H Social Sciences > HD Industries. Land use. Labor > HD4801 Labor
    Uncontrolled Keywords: Convergence - on-the-job training - physical capital - human capital - skilled labor - multiple equilibria - fiscal transfers - coordination failure
    Report Number: 7
    Repository staff approval on: 14 Jun 2002

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