Aggregate Demand Deficiency, Labor Unions, and Long-run Stagnation
28 Pages Posted: 14 Jun 2016
Date Written: June 12, 2016
Abstract
Using a money-in-the-utility-function model, we present long-run stagnation where insatiable demand for money secularly causes deficient aggregate demand and thereby unemployment in the presence of nominal wage stickiness attributable to union wage setting. In this long-run stagnation, generous unemployment benefits reduce unemployment. Moreover, paradoxically, unemployment declines if labor unions give more weight to nominal wage gains compared with employment increases.
Keywords: Aggregate Demand, Labor Union, Long-run Stagnation, Phillips Curve, Unemployment Benefit
JEL Classification: E12, E24, J51, J65
Suggested Citation: Suggested Citation