Citation:

Abstract:

This paper demonstrates that the introduction of imperfect competition into the labor market can solve the problem isolated by Jones and Manuelli (Journal of Economic Theory, 1992, 58, 171-197), and Boldrin (Journal of Economic Theory, 1992, 58, 198-218), that in economies with convex technologies and finitely lived agents, real wages may not grow fast enough for unbounded growth to be sustained. I show that if wages are determined by a bargaining solution, and if the bargaining power of the workforce is sufficiently high (if they appropriate a sufficiently large proportion of rents), then growth is unbounded. Moreover, the growth path generated by such an economy may improve the welfare of all generations apart from the initial old.