An Infinite Horizon Model with Growing Labour Productivity

Abstract

In the preceding section, we have analysed the impact of union wage bargaining on the rate of growth in an OLG model with dual labour markets. The main drawback of this model was that after choosing a sector where to work, the workers had to stay in this sector without having the chance of moving into another sector of the economy when finding themselves unemployed. The assumption of such an artificial mobility constraint was necessary, because of the two-period structure of the model. The consequence of dropping this assumption would be that unemployed workers could move from the high-tech into the traditional sector ex-post. As such, with more realistic assumptions about worker mobility there would be no unemployment and no union growth effect in the model. Therefore the two-period structure of the model does not seem to be appropriate to analyse a dynamic economic with a dual labour market.