Article ID Journal Published Year Pages File Type
989384 Structural Change and Economic Dynamics 2013 12 Pages PDF
Abstract

•A disequilibrium macrodynamic model in which two types of labor (regular and non-regular employment) are incorporated.•We analyze how the expansion of the wage gap between regular and non-regular employment affects the economy.•In the wage-led demand regime, an increase in the wage gap does not affect the stability of equilibrium.•In the profit-led demand regime, an increase in the wage gap destabilizes the equilibrium.•The introduction of the minimum wage is desirable in that it mitigates business cycle fluctuations.

We develop a disequilibrium macrodynamic model in which two types of labor (regular and non-regular employment) are incorporated. We analyze how the expansion of the wage gap between regular and non-regular employment affects the economy. If the steady state equilibrium exhibits the wage-led demand regime, an increase in the wage gap does not affect the stability of equilibrium. In this case, the size of the reserve army effect affects the stability of the equilibrium. If the reserve army effect is strong, the steady state equilibrium is unstable. On the other hand, if the steady state equilibrium exhibits the profit-led demand regime, an increase in the wage gap destabilizes the equilibrium. It is possible that depending on conditions, an increase in the wage gap produces endogenous and perpetual business cycles. The introduction of the minimum wage is desirable in that it mitigates business cycle fluctuations. However, the introduction of an inappropriate minimum wage policy leads to a real wage and an employment rate that are lower than the steady state values.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, , ,