Economic growth models with trade unions: NAIRU and union behavior

Abstract

The instability of the economic growth models that include the NAIRU is demonstrated. The model features the usual economic growth model of the Keynesian type and the union behavior based on the monopoly union model. The stability result of the model is attributable not only to the usual conditions regarding the sluggishness of the market adjustment but also to the strength of the union's bargaining power indicated by the union markup. Instability can occur in cases where the union's bargaining power is weak enough, and it is also proved that Goodwin's growth cycle can occur in this case. Hence, it is possible to conclude that the trade union's behavior has helped the capitalist economy to remain on the steady path of balanced economic growth.