scholarly journals Negative Real Balance Effects in the Presence of Involuntary Unemployment

Ekonomika ◽  
2021 ◽  
Vol 100 (1) ◽  
pp. 54-66
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Wage Rate ◽  
Overlapping Generations ◽  
Pension System ◽  
The Other ◽  
Nominal Wage ◽  
Positive Real ◽  
Overlapping Generations Model ◽  
Real Balance ◽  
Involuntary Unemployment ◽  
Younger Generation

We examine positive or negative real balance effect (or so-called Pigou effect) by falls in the nominal wage rate and the prices of the goods in situations where there is involuntary unemployment using a three-generations overlapping generations model with childhood period and pay-as-you go pension system for the older generation consumers. We will show that if the net savings of the younger generation consumers are larger than their debts due to consumption in their childhood period, there exists positive real balance effect and the employment increases by a fall in the nominal wage rate; on the other hand, if the net savings of the younger generation consumers are smaller than their debts, there exists negative real balance effect and the employment decreases by a fall in the nominal wage rate.

scholarly journals Involuntary Unemployment in a Neoclassical Model

2020 ◽  
Vol 65 (2) ◽  
pp. 12-28
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Wage Rate ◽  
Utility Maximization ◽  
Overlapping Generations ◽  
Monopolistic Competition ◽  
Returns To Scale ◽  
Profit Maximization ◽  
Nominal Wage ◽  
Olg Model ◽  
Neoclassical Model ◽  
Involuntary Unemployment

AbstractWe show the existence of involuntary unemployment without assuming wage rigidity using a neoclassical model of consumption and production. We consider a case of indivisible labor supply and increasing returns to scale under monopolistic competition. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations (OLG) model with two or three generations. In a two-periods OLG model it is possible that a reduction of the nominal wage rate reduces unemployment. However, if we consider a three-periods OLG model including a childhood period, a reduction of the nominal wage rate does not necessarily reduce unemployment.

scholarly journals On Governance and the Demographic Transition

2012 ◽  
Vol 4 (6) ◽  
pp. 319-330
Author(s):  
Flaubert Mbiekop
Keyword(s):  
Demographic Transition ◽  
Financial Support ◽  
Overlapping Generations ◽  
The Other ◽  
Overlapping Generations Model ◽  
Child Quality ◽  
Mild Conditions ◽  
Weak Institutions ◽  
The One ◽  
Fertility Choices

It is now conventional wisdom that institutions shape household fertility choices, especially in developing countries. However, deeper insights into the mechanisms at play are still needed. This paper develops a game-theoretical framework with a simple overlapping-generations model to show how a typical household may come to prefer bearing and raising numerous children as a savings scheme for retirement and not rely on conventional outlets for saving when facing weak institutions. On the one hand weak institutions increase the risk that individuals may lose their savings if relying on conventional outlets. On the other hand, childbearing as an investment/savings scheme carries with it the risk that disguised or complete unemployment may prevent grown children from providing the expected old-age financial support. The typical household thus trades off between both types of risks, yet with more control in the latter case, as the likelihood of unemployment can be reduced by carefully selecting a child quality-quantity strategy. Mild conditions are sufficient to show that sound institutions induce less fertility and foster private saving and oldage consumption. A simple voting experiment unveils a tricky socio- economic dynamics whereby wealthier households may have stakes supporting weak institutions.

scholarly journals Microeconomic Foundation for Phillips Curve with a Three-Period Overlapping Generations Model and Negative Real Balance Effect

2021 ◽  
Vol 8 (55) ◽  
pp. 163-175
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Unemployment Rate ◽  
Overlapping Generations ◽  
Inflation Rate ◽  
Phillips Curve ◽  
Monopolistic Competition ◽  
Nominal Wage ◽  
Olg Model ◽  
Real Balance ◽  
Negative Relation ◽  
Profit Maximisation

Abstract We show a negative relation between the inflation rate and the unemployment rate, that is, the Phillips curve using a three-period overlapping generations (OLG) model with childhood period and pay-as-you-go pension for older generation under monopolistic competition with negative real balance effect. In a three-period OLG model, there may exist a negative real balance effect because consumers have debts and savings. A fall (or rise) in the nominal wage rate induces a fall (or rise) in the price, then by negative real balance effect, the unemployment rate rises (or falls), and we get a negative relation between the inflation rate and the unemployment rate. This conclusion is based on the premise of utility maximisation of consumers and profit maximisation of firms. Therefore, we present a microeconomic foundation for the Phillips curve. We also examine the effects of fiscal policy financed by seigniorage, which is represented by left-ward shift of the Phillips curve.

The Fallacy of Wage Cuts and Keynes's Involuntary Unemployment

2007 ◽  
Vol 29 (3) ◽  
pp. 309-329 ◽  
Author(s):  
John Levendis
Keyword(s):  
Wage Rate ◽  
Full Employment ◽  
Economic Problem ◽  
Nominal Wage ◽  
Involuntary Unemployment ◽  
Narrative History ◽  
History Of ◽  
Definition Of ◽  
Wage Cuts

The lingering economic problem for economists in the 1920s and 1930s was unemployment. What caused it? More importantly, what could cure it? John Maynard Keynes's work offered new insights regarding both the reasons for, and the cures of, lingering and massive unemployment—what Keynes called “involuntary unemployment.” Keynes's definition of the term evolved as he gradually came to realize the role of the fallacy of composition in explaining why nominal wage rate adjustments might not induce full employment. I argue that it was Richard Kahn's multiplier article, more than anything, which guided Keynes's own understanding of the phenomenon. This paper, then, is a narrative history of how Keynes came to grips with the unprecedented level of unemployment in the 1920s and '30s interpreted through the lens of the Kahnian multiplier.

scholarly journals Pension policies in a model with endogenous fertility

2018 ◽  
Vol 19 (1) ◽  
pp. 109-125 ◽  
Author(s):  
GIAM PIETRO CIPRIANI ◽  
FRANCESCO PASCUCCI
Keyword(s):  
Overlapping Generations ◽  
Pension System ◽  
Retirement Age ◽  
Endogenous Fertility ◽  
Contribution Rate ◽  
Negative Effects ◽  
Overlapping Generations Model ◽  
The Social ◽  
Policy Measures ◽  
Set Up

AbstractWe set up an overlapping-generations model with endogenous fertility to study pensions policies in an ageing economy. We show that an increasing life expectancy may not be detrimental for the economy or the pension system itself. On the other hand, conventional policy measures, such as increasing the retirement age or changing the social security contribution rate could have undesired general equilibrium effects. In particular, both policies decrease capital per worker and might have negative effects on the fertility rate, thus exacerbating population ageing.

Capital accumulation when consumers are tempted by others’ consumption experience

2019 ◽  
Vol 72 (3) ◽  
pp. 804-828
Author(s):  
Jaime Alonso-Carrera ◽  
Stéphane Bouché
Keyword(s):  
Peer Effects ◽  
Capital Accumulation ◽  
Overlapping Generations ◽  
Self Control ◽  
The Other ◽  
Crucial Point ◽  
Overlapping Generations Model ◽  
Consumption Experience ◽  
The Stability ◽  
Average Consumption

Abstract We analyse how the influence of peer effects on self-control affects capital accumulation. We consider an overlapping generations model where individuals are tempted to take the economy-wide average consumption as an aspiration. Consumers exhibit a preference for self-control. They face a self-control problem, and observing each other’s consumption determines the individual’s capacity to deal with this problem. We show that temptation and self-control may either increase or decrease the accumulation of capital. The crucial point would be whether or not consumers take the consumption of the individuals belonging to the other living generations as a reference in forming their aspirations. This point also crucially determines the stability properties of the equilibrium paths.

scholarly journals INDIVISIBLE LABOR SUPPLY AND INVOLUNTARY UNEMPLOYMENT: MONOPOLISTIC COMPETITION MODEL

2020 ◽  
pp. 1-14
Author(s):  
YASUHITO TANAKA
Keyword(s):  
Labor Supply ◽  
Utility Maximization ◽  
Overlapping Generations ◽  
Monopolistic Competition ◽  
Returns To Scale ◽  
Profit Maximization ◽  
Wage Rigidity ◽  
Overlapping Generations Model ◽  
Involuntary Unemployment ◽  
Constant Returns To Scale

This paper is an attempt to provide a micro-theoretical basis for Keynesian economics while maintaining as much of the neoclassical framework as possible, such as utility maximization for consumers and profit maximization for firms. We show the existence of involuntary unemployment without assuming wage rigidity when labor supplies of individuals are indivisible. We derive involuntary unemployment using an overlapping generations model under monopolistic competition with constant returns to scale technology and indivisible labor supply.

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