Aggregate demand deficiency, labor unions, and long-run stagnation

Using a money-in-the-utility-function model, this paper considers long-run stagnation where insatiable demand for money persistently creates aggregate demand deficiency and consequent unemployment in the presence of nominal wage stickiness attributed to union wage setting. In this long-run stagnation, generous unemployment benefits reduce unemployment. Moreover, paradoxically, unemployment declines if labor unions give weight to nominal wage gains rather than employment increases.