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DUAL LABOR MARKET AND ENDOGENOUS FLUCTUATIONS

Published online by Cambridge University Press:  14 July 2005

FRANCESCO DE PALMA
Affiliation:
Louis Pasteur University
THOMAS SEEGMULLER
Affiliation:
CNRS and EUREQua

Abstract

We study the influence of wage differential on the emergence of endogenous fluctuations. In this way, we introduce a dual labor market, based on the Shapiro–Stiglitz efficiency wage theory in an overlapping generations model. We show that wage inequality is a source of endogenous fluctuations. Indeed, a sufficiently strong wage differential leads to the occurrence of cycles of period 2 and local indeterminacy. Moreover, in contrast to several existing contributions, these results depend neither on increasing returns to scale nor on the degree of capital–labor substitution.

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ARTICLES
Copyright
© 2005 Cambridge University Press

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