GROWTH, UNEMPLOYMENT AND THE WAGE SETTING PROCESS.



Theorem 4.1 There exists w,t and wt such that if wC < w,t then an equilibrium
with unemployment always exists and it is unique.

If γt = 1 and wtt wC < wt there exists an equilibrium with unemployment
and an equilibrium with full employment, if
wt wtc there exists a unique
equilibrium with full employment.

If 0 Yt < 1 and w,t wtc there exists an equilibrium with unemployment
and an equilibrium with full employment.

The representation of these situations are given by Figures 1.a, 1.b and
2.a, 2.b and 2.c. We denote the equilibrium with unemployment as w
*u =
w^t(wt-it-i, Ytt), τfu = τtt), and s*,u = ^t(wt-ι, τt-ι,Ytt)∙ The special
case
γt = 1 is analyzed in the next section. When 0 γt < 1 we can prove the
following theorem.

Theorem 4.2 Comparative Statics. The sign of the equilibrium partial deriva-
tives is given by the following table:

If ut 1-βt then:

— < 11 ∂Tτ < 0 ^t > 0 .

∂βt        ∂βt        ∂βt

If ut 1-αβt then:

dwLL < 0  - < 0  d^- < 0

∂βt < 0  ∂βt < 0  ∂βt < 0 .

If (1 - τt)wt-1 > st then:

d^L > 0  dTt = 0  d^- < 0

∂γt > 0   ∂γt   0   ∂γt < 0 .

If (1 - τt)wt-1 < st then:

— < 0 ∂τL =0 ∂sL > 0 .
∂γt         ∂γt         ∂γt       .

The interpretation of Theorem 4.2 is the following. First, the more proem-
ployed workers the government the lower the equilibrium wage and, by ( 23)
and ( 25), the higher the output growth rate and the lower the unemployment
rate. Second, if the unemployment rate is low enough, u
t 1-αβt, then the more
proemployed workers the government the higher the unemployment benefit, that
is, we will have more employment and a higher unemployment benefit with a
more proemployed workers government. Note that the unemployment rate de-
pends on
βt , this means that, in principle, we can not say when this situation
happens. A sufficient condition is to have
1-αβt > 1, that is, βt < 1 α. We
can interpret this result as follows: if the government is really prounemployed
workers and it becomes more proemployed workers the economy will have less
unemployment and a higher unemployment benefit, that is, if the government
cares sufficiently about unemployed workers a lower unemployment rate is asso-
ciated with a higher unemployment benefit. Finally, if the real wage after taxes
of the previous period is greater that the unemployment benefit of the period
the higher the union cares about the wage of the previous period the higher
the equilibrium wage rate and the unemployment rate and the lower the growth
rate and the unemployment benefit.

12



More intriguing information

1. GOVERNANÇA E MECANISMOS DE CONTROLE SOCIAL EM REDES ORGANIZACIONAIS
2. Insecure Property Rights and Growth: The Roles of Appropriation Costs, Wealth Effects, and Heterogeneity
3. Who is missing from higher education?
4. Pass-through of external shocks along the pricing chain: A panel estimation approach for the euro area
5. The name is absent
6. Poverty transition through targeted programme: the case of Bangladesh Poultry Model
7. New issues in Indian macro policy.
8. Regional specialisation in a transition country - Hungary
9. The name is absent
10. The name is absent
11. Influence of Mucilage Viscosity On The Globule Structure And Stability Of Certain Starch Emulsions
12. The use of formal education in Denmark 1980-1992
13. Pupils’ attitudes towards art teaching in primary school: an evaluation tool
14. The name is absent
15. Land Police in Mozambique: Future Perspectives
16. Evaluation of the Development Potential of Russian Cities
17. The Effects of Reforming the Chinese Dual-Track Price System
18. On the Existence of the Moments of the Asymptotic Trace Statistic
19. Understanding the (relative) fall and rise of construction wages
20. Investment and Interest Rate Policy in the Open Economy