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

21 Pages Posted: 24 Nov 2006

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Mikko Puhakka

University of Oulu - Department of Economics

Date Written: November 2006

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.

Keywords: overlapping generations economy, capital accumulation, flexible wage negotiation, stability and dynamics

JEL Classification: J51, C62

Suggested Citation

Koskela, Erkki and Puhakka, Mikko, Stability and Dynamics in an Overlapping Generations Economy Under Flexible Wage Negotiation and Capital Accumulation (November 2006). CESifo Working Paper Series No. 1840. Available at SSRN: https://ssrn.com/abstract=946911

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mikko Puhakka

University of Oulu - Department of Economics ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

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