Economic Growth and the Employer of Last Resort: A Simple Model of Flexicurity Capitalism

28 Pages Posted: 22 Aug 2007

See all articles by Peter Flaschel

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Date Written: August 2007

Abstract

This paper presents a model of economic growth with unemployment due to labor market rigidities. The economy consists of a firm that maximizes profits, of a government and of two types of households that maximize inter-temporal utility. One household supplies skilled labor at the first labor market, the other household supplies simple labor at the second labor market. The government in the economy raises taxes and uses its revenues to employ labor receiving unemployment benefits, to finance transfers to the household in the second labor market and to finance public spending. We analyze both the version with exogenous growth as well as an endogenous growth variant, where growth is made endogenous by assuming positive externalities of capital. The exogenous growth model is characterized by global determinacy while it is locally indeterminate. The endogenous growth model can be globally indeterminate with the high balanced growth path being locally indeterminate and the low balanced growth path being locally determinate. We also study how taxation and how the speed of the wage adjustment affect the economy.

Keywords: Economic growth, unemployment, flexicurity

JEL Classification: E62, O41

Suggested Citation

Flaschel, Peter and Greiner, Alfred, Economic Growth and the Employer of Last Resort: A Simple Model of Flexicurity Capitalism (August 2007). Available at SSRN: https://ssrn.com/abstract=1008861 or http://dx.doi.org/10.2139/ssrn.1008861

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

Alfred Greiner (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
Bielefeld, 33501
Germany
+49 521 106 4859 (Phone)
+49 521 106 67120 (Fax)

HOME PAGE: http://phoenix.wiwi.uni-bielefeld.de/lehrbereiche/vwl/wipol

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