However, in these models, only the wage determination mechanism for regular workers is specified, and the wage for non-regular workers is. Consequently, the labor productivity of non-regular workers declines in recessions, unlike that of regular workers. Lnr, employment of non-regular workers; u, the capacity utilization rate; and K, the share capital.
Let wr and wnr denote the real wage rate of regular workers and that of non-regular workers, respectively.
Distributive regime
A distinctive feature of our model is the wage bargaining of regular workers who seek to retain part of the wage. In the second case, trade unions comprising only regular workers set the target value of ψ without considering the interests of non-regular workers. Therefore, if, for example, the wage share of non-regular workers decreases and as a result, firms restore their profit share, then regular workers will demand a real wage increase.
Therefore, the assumption that full-time employees determine the target value of the wage share of all job classes, ψ, reflects a situation in which the labor market of non-regular employees is completely independent of the labor market of regular employees. In addition, the rate of change in the real wage rate of non-regular workers wnr is given by 0. The second term on the right-hand side of equation (23) shows the effect of collective wage bargaining on the wage determination of unemployed - regular workers.
Then the labor market of non-regular workers will be fully isolated from the labor market of regular workers, and the real wage rate of non-regular workers will therefore only change due to a reserve-army effect. We can interpret ψr as a reference value so that the fruits of wage bargaining are reflected in the real wage rate of non-regular workers. When regular workers obtain a higher real wage relative to labor productivity, the real wage rate of non-regular workers tends to rise.
Steady state equilibirum
However, if we assume that the rate of growth of regular workers' labor productivity is positive—in other words, the rate of growth of the real wage rate of regular workers is positive—we need u∗ >u from the equation ( 16). Therefore, the combination of u∗ r∗ ψr is excluded, and the combination of u∗ >u and. That is, the equilibrium value of the capacity utilization rate exceeds the normal rate of capacity utilization, the equilibrium value of ψr is less than the target wage share of regular workers, and the equilibrium value of the wage share of all economy is less than the target share of wages in the whole economy.
From this we obtain the steady-state equilibrium value of the occupancy rate.8 Using this value, we obtain the steady-state equilibrium values of ψr and ψnr.
Stability analysis
If the wage of non-regular workers is not affected at all by the wage of regular workers, the steady-state equilibrium is locally unstable. We can consider the case where there is a wage-driven demand regime, as an example.9 Both ψr of regular workers and ψnr of non-regular workers have a positive impact on changes in the capacity utilization rate; however, ψnr is more strongly affected than ψr. The reason is that non-regular workers who spend all of their wage income increase aggregate demand more when the wage share increases than regular workers who spend part of their wage income on saving, as mentioned above up.
Suppose there are two labor markets, that is, one consisting of regular workers who actively secure employment and spend part of their wage income on savings, and the other consisting of non-regular workers. Therefore, by including non-regular workers in collective agreements and linking the two labor markets to some extent, there is a possibility that the dynamic system will be stabilized. Therefore, when a demand regime is wage-driven—that is, in the case of 0
In the following, we analyze the stability of dynamics in the case of D>0 and in the case of D<0. Both in the case of D>0 and in the case of D<0, when the adjustment speed of the goods market is within a certain interval, a limit cycle occurs. In the following numerical simulations, we show that there is indeed a significant equilibrium, and that it is possible for a limit cycle to occur, in the case where a wage-led demand regime and D>0 hold.10.
Effect of an increase in regular employment
As shown in the stability analysis in section 3, F > 0 must hold for the equilibrium to be stable; in this case, εηθ(Br −Bnr)+δ(ςBnr +εA)>0 necessarily holds, and so the denominator of the right-hand side of this equation is positive. Therefore, when there is a shift in employment to regular workers, regardless of the demand regime, the equilibrium capacity utilization rate will fall. The reason for this is that an increase in the number of regular employees with a greater willingness to save has a negative effect on effective demand.
The reason is that an increase in θ has a negative effect on the labor productivity of regular workers λr through a decrease in the equilibrium capacity utilization rate u∗ and a labor pooling effect; this increase will cause a subsequent increase in ψr. We can also show that the total wage share ψ and ψr change in the same direction as Therefore, it is ambiguous whether the shift in employment towards regular workers increases or decreases ψnr.
If a reserve army effect η is large and a spillover from ψr to ψnr is small, because an increase in θ will always reduce u∗, an employment shift towards regular workers will reduce ψnr through a reserve army effect. In the case of ςδ −θεη <0, an employment shift towards non-regular workers reduces the wage share of non-regular workers. On the other hand, in the case of ςδ −θεη >0, the effect of an employment shift towards regular workers on the wage share of non-regular workers is ambiguous.
Numerical simulations
Implications for flexicurity
First, we analyze the effect of an increase in employment mobility on an economy. As shown in Section 3, when the capacity utilization rate falls below the equilibrium level, ψr increases in the case of a wage-driven demand regime, which has a positive effect on demand; ψnr, on the other hand, decreases and has a negative effect on demand. Previous studies attempt to introduce a minimum wage into business cycle models, such as Flaschel and Greiner and Sasaki et al.
These studies argue that the introduction of a minimum wage has the effect of stabilizing an economy, in the sense that it narrows the range of fluctuations in business cycles. We will now examine how the introduction of a minimum wage affects the economy in our model. Therefore, the introduction of a minimum wage in our model has a stabilizing effect, in the sense that it narrows the width of business cycles; therefore, this result is the same as in previous studies.
We can evaluate this numerical example as appropriate because the minimum wage ψnrmin is less than the equilibrium value of ψnr in the case of θ =0.49. Based on this result, we can show that the capacity utilization rate is minimized in the long term in the case where we try to make a labor market more flexible and introduce a minimum wage. In other words, if we make employment more flexible in order to increase the capacity utilization rate, it will widen the width of the vibrations in business cycles, and if we introduce a minimum wage to moderate the effects of destabilization, it will make the capacity utilization rate lower than in the case, where we implement no policy – that is, in the case of θ =0.5.
Concluding remarks
Therefore, a flexicurity policy that simultaneously tries to make employment more flexible and improve social security may not achieve the desired results. regular workers and non-regular workers, given the institutional differences between labor markets; this makes demand fluctuations unstable because they are associated with differences in the propensity to save. However, if wage bargaining by a union reflects the interests of non-regular workers and there is an institution through which the fruits of wage bargaining affect not only the wages of regular workers but also those of non-regular workers, then a dynamic system emerges. could be stabilized. Regarding the relationship between the demand regime and the stability of the dynamics, we show that the dynamics are most likely to be stable in the case of a wage-driven demand regime.
We also perform a comparative static analysis and find that a shift in employment to regular workers reduces capacity utilization, increases the wage share of regular workers, and decreases the profit share. However, the wage share of non-regular workers does not necessarily decrease with a shift in employment to regular workers – that is, it may instead increase conditionally. We consider a shift in employment to non-regular workers as synonymous with an increase in labor flexibility, and show that an increase in labor flexibility increases the equilibrium value of the capacity utilization rate; however, it also increases the width of.
Introducing a minimum wage among non-regular workers could reduce the breadth of this oscillation. This study contributes to the literature by explicitly introducing the institutional differences in labor markets between regular workers and non-regular workers, thereby demonstrating the relationship between the formation of collective bargaining and the stability of a dynamic system. In reality, however, the unemployment rate obviously necessarily increases when companies adjust the employment of non-regular workers in times of recession.
However, since in this study the output of regular workers varies according to changes in labor demand and productivity due to the labor pooling effect, the output of regular workers will change according to variations in the capacity utilization rate. 5 We assume that the technological ratio between potential production and fixed capital is constant.
