The Keynesian Unemployment and Capital Shortage:A Simple Dynamic Approach with Trade Unions
- The purpose of this paper is to provide a dynamic analysis by utilizing the bargaining model which incorporates the relationship between the behavior of trade union and the macroeconomic performance in Japan. Our discussion focuses on the influence of trade union on wage and employment through the re-examination of its behavior, although the wage and employment effects of trade union were slighted during the stagnation of Japan’s economy as the studies of Todate (2009) and Booth (2014). From the other aspect, the framework of today’s macroeconomic policy by the Japanese government includes the expected roles of the prices and wages. In this sense, the effect of trade union in determining wages is worth investigating. Based on these aspects, this paper investigates the effects of trade union on macroeconomy and the change in the role of trade union in Japan by the theoretical and the empirical analyses.
The dynamic system of the bargaining process over wage and employment that this paper uses is the application of the trade union model. It gives a specific definition of the unemployment. Concretely, the trade union model splits unemployment into two categories: (1) unemployment due to capital shortage, and (2) unemployment due to demand shortage. Moreover, it analyses how the employment-wage (or the capacity utilization-wage) relation in the short-run arises as a consequence of the wage bargaining. By introducing a particular type of investment function into the dynamic model, the stability conditions are investigated and we have the following conclusions: (1) the stability of the economy depends on the bargaining power of the trade union, (2) the balanced growth path can occur where the union’s monopoly power is sufficiently weak even if we have the Harrod-type investment function that is usually regarded as the major factor of leading the instability of the economy. In addition, we explore the relationship between the bargaining structure in the corporatist model and the stability condition, and then we find that a trade union’s behavior can help the capitalist economy to remain taking a balanced growth path. Furthermore, the different types of unemployment including (a) unemployment due to capital shortage, and (b) the one due to demand shortage, are considered.
As for the analysis concerning the impact of the wage bargaining structure on the stability of the economy, there are many attempts to provide empirical researches on how the wage bargaining structure affects the macroeconomic performance. This paper conducted the estimations as the empirical researches by utilizing the “right to manage” model. Our estimations of wage equation for manufacturing industries by OLS and GMM showed that the “right to manage” model has a certain interpretability of trade union’s behaviour in recent Japan. However, we could not find the clue to the structural change of wage determination structure and the strong bargaining process.
IERCU Discussion Paper, No.271