Wage flexibility and economic stability in a non-Walrasian model of economic growth

• We set up a model of economic growth that deals with Keynesian unemployment, from non-Walrasian perspectives.
• We examine the possibility of persistent growth cycles generated in both rigid-wage and flexible-wage situations.
• We find that wage flexibility has an aggravating impact on the economic stability.

In this paper, we set up a model of economic growth which deals with Keynesian unemployment, from non-Walrasian/Keynesian perspectives, investigate the possibility of persistent “growth cycles” generated and analyze the effects of flexibility of (real) wages on the long-run economic stability. Consequently, we reach the conclusion that flexibility of wages has an adverse effect on the macroeconomic stability and that reductions of wages have negative impacts on the attainment of “full-employment.”