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Bargaining over Productivity and Wages when Technical Change is Induced: Implications for Growth, Distribution and Employment

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  • Daniele Tavani

    (Department of Economics, New School for Social Research)

Abstract

In a simple one-sector economy operating at full capacity, workers and firms bargain a la Nash (1950) over wages and productivity gains taking into account the trade-offs faced by firms in choosing factor-augmenting technolo- gies. The aggregate environment that arises from self-interested behavior by economic agents, thus producing decision rules on wages, productivity gains, savings and investment, is described by a two-dimensional dynamical system in the employment rate and output/capital ratio. The economy converges cyclically to a long-run equilibrium involving a Harrod-neutral profile of tech- nical change, a constant rate of employment of labor, and constant input shares. The type of oscillations predicted by the model is qualitatively consis- tent with the available data on the United States (1963-2003), replicates the dynamics found in earlier models of growth cycles such as Goodwin (1967), Shah and Desai (1981), van der Ploeg (1987), and is verified numerically in simulations. Institutional change, as captured by variations in workers’ bar- gaining power, has a positive effect on the rate of growth of output per worker but a negative effect on employment. Economic policy can also affect the growth and distribution pattern through changes in unemployment compen- sations, which also have a positive impact on labor productivity growth but a negative impact on employment.

Suggested Citation

  • Daniele Tavani, 2011. "Bargaining over Productivity and Wages when Technical Change is Induced: Implications for Growth, Distribution and Employment," Working Papers 1103, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:1103
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    Cited by:

    1. Sasaki, Hiroaki & Asada, Yasukuni, 2020. "Quantifying Goodwin Growth Cycles with Minimum Wage Shares," MPRA Paper 99926, University Library of Munich, Germany.
    2. Gilbert L. Skillman, 2022. "The Nash bargaining solution in labor market analysis," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 884-899, July.
    3. Hiroaki Sasaki, 2022. "Growth and income distribution in an economy with dynasties and overlapping generations," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 215-238, April.
    4. Stamegna, Marco, 2022. "Wage inequality and induced innovation in a classical-Marxian growth model," MPRA Paper 113805, University Library of Munich, Germany.
    5. Dutt, Amitava Krishna & Veneziani, Roberto, 2020. "A Classical Model Of Education, Growth, And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 24(5), pages 1186-1221, July.
    6. Manuel David Cruz, 2022. "Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019," Working Papers PKWP2203, Post Keynesian Economics Society (PKES).
    7. Vinicius Curti Cícero & Daniele Tavani, 2024. "Institutional changes, effective demand and inequality: a structuralist model of secular stagnation," Working Papers PKWP2410, Post Keynesian Economics Society (PKES).
    8. Pengfei Zhang, 2023. "Endogenous capital-augmenting R&D, intersectoral labor reallocation, and the movement of the labor share," Journal of Economics, Springer, vol. 140(1), pages 1-36, September.
    9. Rudiger von Arnim & Jose Barrales, 2015. "Demand-driven Goodwin cycles with Kaldorian and Kaleckian features," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 351-373, July.
    10. Roberto Veneziani & Luca Zamparelli & Daniele Tavani & Luca Zamparelli, 2017. "Endogenous Technical Change In Alternative Theories Of Growth And Distribution," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1272-1303, December.
    11. Daniele Tavani & Luca Zamparelli, 2016. "Distributive Conflict, Growth, and the ‘Entrepreneurial State’," Working Papers 6/16, Sapienza University of Rome, DISS.
    12. Mariolis Theodore & Konstantakis Konstantinos N. & Michaelides Panayotis G. & Tsionas Efthymios G., 2019. "A non-linear Keynesian Goodwin-type endogenous model of the cycle: Bayesian evidence for the USA," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(1), pages 1-16, February.
    13. Manuel David Cruz & Daniele Tavani, 2022. "Secular Stagnation: A Classical-Marxian View," Working Papers PKWP2229, Post Keynesian Economics Society (PKES).
    14. Cruz, Manuel David, 2023. "Labor Productivity, Real Wages, and Employment in OECD Economies," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 367-382.
    15. Daniele Tavani, 2023. "The Classical Model of Growth and Distribution," Working Papers 2311, New School for Social Research, Department of Economics.
    16. Stamegna, Marco, 2022. "Induced innovation, the distributive cycle, and the changing pattern of labour productivity cyclicality: a SVAR analysis for the US economy," MPRA Paper 113855, University Library of Munich, Germany.
    17. Daniele Tavani & Peter Flaschel & Lance Taylor, 2011. "Estimated non-linearities and multiple equilibria in a model of distributive-demand cycles," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(5), pages 519-538, October.
    18. Stamegna, Marco, 2022. "A Kaleckian growth model of secular stagnation with induced innovation," MPRA Paper 113794, University Library of Munich, Germany.

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    More about this item

    Keywords

    Goodwin Growth Cycle; Bargaining; Induced Technical Change; Factor Shares; Employment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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