GEP Research Paper 01/26
Unions, International Factor Mobility and Indeterminacy
M. Aloi and T. Lloyd-Braga
Abstract
We consider simple overlapping generation models for two countries with capital externalities and one output. Preferences and technologies are identical across countries. However countries differ in labour market structure. In one economy there is perfect competition in the labour market, while in the other employment and wages are determined through efficient bargaining between unions and firms. Our parameterisation is such that in autarkic equilibrium the unionised country exhibits indeterminacy while the other has a stable determinate steady state. We show that if free trade and free capital movements exist, then indeterminacy is likely to appear in the world market. However if international labour movements are allowed indeterminacy may disappear.
Issued in October 2001.
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