GROWTH, UNEMPLOYMENT AND THE WAGE SETTING PROCESS.



proposition 3.1.1 and theorem 4.1 we have:

* - st
-t (1 - α)β ;

substituting st* using proposition 5.1 we obtain:

-* =    1    (1 - β)-*Le ;

t (1 - α)β  Nt - Le

and simplifying wt* equation 54 becomes:


Lte


(1 - α)β     N

(1 - α)β +(1 - β) t;


that is,


ut =


1 - β

1 - αβ


From ( 22) we have:


Lte


1-α

cAt α wt-1 Le-1


(53)

(54)

(55)

(56)

(57)


1-α

Substituting ( 55) in ( 57), if there is unemployment in period t - 1 solving for
wt* we obtain:

*     4l-α∕1     vcw*-1Nt-1 1a    4l-α∕1     v cw*-1 lα       ∕κcλ

wt = cAt   (1 - α)[----N----] = At (1 - α)[(1 + n) ] .     (58)

Diving ( 58) by At we obtain:

wt--1

w*                 c ~ï---

— = (1 - α)[-----A—----]a.                  (59)

At   (     )[(1 + n)(1+ g)]                      ( )

Ifwe call at the equilibrium wage per unit of efficient labor ω*, that is, ω* = A-
equation ( 59) becomes:

ω* = (1 - α)[ ---——----]a.                  (60)

t (     )[(1 + n)(1+ g)]                     ()

Solving ( 60) for ωL* -R when ωt* = ωt*-l = ωL* -R we obtain :

ωL в = (1 - α)1 (-------—:-------)1 .                  (61)

l-r (     )   ((1 + n)(1 + g))                  ()

It is easy to check, drawing the phase diagram that the wage per unit of efficient
labour converges to
ωL* -R. From ( 22) we have in period zero

e

L0


1-α

A0 α Ko ,


[ twl ] α ;
l-α


(62)


22




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