Indeterminacy in a finance constrained unionized economy

• Published in: Journal of mathematical economics Vol. 43; no. 3; pp. 347 - 364
• Main Authors: Lloyd-Braga, Teresa, Modesto, Leonor
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-04-2007; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Mathematical Economics
• Subjects: Capital; Elasticity of substitution; Externalities; Externality; Hopf bifurcations; Indeterminacy; Labor unions; Labour market; Studies; Trade unions; Unemployment; Unions; Externalities; D62; E32; J51; Indeterminacy; Hopf bifurcations; D60; Unions
• ISSN: 0304-4068; 1873-1538
• DOI: 10.1016/j.jmateco.2006.07.001

We introduce labor unions and unemployment in a finance constrained monetary economy with heterogenous agents and productive labor externalities. We find that unions, introducing endogenous markup variability, influence the dynamics of the model. Although a lower bound for labor externalities is always required for indeterminacy, this lower bound decreases with union power when the elasticity of substitution between capital and labor is above one. For values of this elasticity below one, this result is reversed. We also show that Hopf bifurcations may occur as union bargaining power crosses a critical value. Finally, we find that unions increase simultaneously steady state employment, capital accumulation and welfare iff the (equilibrium) marginal productivity of labor is decreasing in employment.