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Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation

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  • Erkki Koskela
  • Mikko Puhakka

Abstract

We analyze the stability and dynamics of an overlapping generations model under imperfectly competitive labour markets without population growth and with perfect foresight. Under right-to-manage wage bargaining we assume that wage is negotiated after the decision on the capital stock. With Cobb-Douglas utility and production functions the steady state is unique and the steady state capital stock depends on the trade union’s bargaining power. This is because higher bargaining power of the trade union will induce workers to save more thus boosting the capital stock, ceteris paribus. Finally, we show that the steady state equilibrium is a saddle point.

Suggested Citation

  • Erkki Koskela & Mikko Puhakka, 2006. "Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation," CESifo Working Paper Series 1840, CESifo.
    • Handle: RePEc:ces:ceswps:_1840
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    References listed on IDEAS

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    Cited by:

    1. Sjögren, Tomas, 2017. "Can a Marginally Distorted Labor Market Improve Capital Accumulation, Output and Welfare?," Umeå Economic Studies 946, Umeå University, Department of Economics.

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    Keywords

    overlapping generations economy; capital accumulation; flexible wage negotiation; stability and dynamics;
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