Endogenous Fluctuations in Unionized Economies with Productive Externalities

• Published in: Economic theory Vol. 26; no. 3; pp. 629 - 649
• Main Authors: Coimbra, Rui, Lloyd-Braga, Teresa, Modesto, Leonor
• Format: Journal Article
• Language: English
• Published: Heidelberg Springer-Verlag 01-10-2005; Springer Nature B.V
• Subjects: Bargaining; Bargaining power; Capital accumulation; Competition; Consumption; Correlation analysis; Economic equilibrium; Economic externalities; Economic fluctuations; Economic models; Economic theory; Elasticity; Employment; Equilibrium; External economies; Externalities; Externality; Labor economics; Labor market; Labor supply; Labor unions; Macroeconomics; Mathematical methods; Overlapping-generations model; Productivity; Steady state economies; Studies; Technology; Trade unions; Underemployment; Wages; Wages & salaries; Welfare economics
• ISSN: 0938-2259; 1432-0479
• DOI: 10.1007/s00199-004-0510-8

We discuss the effects of unions on steady-state multiplicity and welfare, and on the existence of endogenous fluctuations. We consider an OG economy with productive capital externalities and we focus on underemployment equilibria. We find that for wide regions in the parameter space, including an arbitrarily small degree of externalities and a Cobb-Douglas technology, unions increase steady state employment and welfare, and local indeterminacy (sunspots) emerges. Moreover with a CES technology multiplicity of steady states is only possible in the presence of unions. Our results also show that the role of unions in shaping local dynamics and bifurcations depends on technology (externalities and factor's substitutability).