Wage bargaining, unemployment, and growth

This paper examines interactions between wage bargaining, unemployment, and growth. In the basic model, wage bargaining determines unemployment and is not influenced by growth. An increase in unemployment benefits increases unemployment and reduces capital accumulation. In a neoclassical framework, the long-run effect is a reduction of income per head. In contrast, the wage is not affected. With endogenous growth the wage level increases, but the growth rate declines. Only if growth increases labour market flows, it does have an influence on wage bargaining. Then an increase in growth may increase unemployment, and this, in turn, reduces growth.