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

Murota, Ryu-ichiro, Aggregate Demand Deficiency, Labor Unions, and Long-run Stagnation (June 12, 2016). Available at SSRN: https://ssrn.com/abstract=2794525 or http://dx.doi.org/10.2139/ssrn.2794525

Ryu-ichiro Murota (Contact Author)

Kindai University ( email )

3-4-1 Kowakae
Higashi-Osaka City, Osaka 577-8502
Japan

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