Abstract
This paper studies the ability of a fully competitive economy to recover from shocks in the long run in the presence of constraints involved by anti-discrimination rules by age, such as the requirement of ?equal pay for equal work? and the restriction against decreasing salaries as workers age. After an external shock in the presence of the second type of constraint, the economy recovers in the long run, while in the presence of the first type of constraint the economy never recovers. Unfortunately when both constraints are enforced the economy is totally unable to recover from an external shock. It stagnates. Therefore the convergence of the economy to a first-best steady state, irrespective of initial conditions or shocks, is compromised.
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