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Recessions in a two-sector model: Capitalists’ risk preferences determine workers' real wages

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  • Maruyama, Yuuki

Abstract

With a two-sector model of the consumer goods sector and the capital goods sector, this paper analyzes workers’ real wages. The higher the risk preference of capitalists, the greater the ratio of capital goods to safe assets in savings, the labor demand in the capital goods sector will increase, some workers will move from the consumer goods sector to the capital goods sector, the marginal product of labor will rise in both sectors, and workers’ real wages will increase. In this model, a sudden increase in capitalists’ risk aversion can cause a recession. In addition, this model is used to analyze monetary policy, suppression of an overheating economy, and two positive externalities from capitalists to workers.

Suggested Citation

  • Maruyama, Yuuki, 2019. "Recessions in a two-sector model: Capitalists’ risk preferences determine workers' real wages," SocArXiv rvne2, Center for Open Science.
    • Handle: RePEc:osf:socarx:rvne2
    DOI: 10.31219/osf.io/rvne2
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