Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89950
Authors: 
Dos Santos Ferreira, Rodolphe
Lloyd-Braga, Teresa
Modesto, Leonor
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Paper 7888
Abstract: 
We study employment dynamics using an OLG model with unemployment benefits and universal old-age survival pensions, both financed by taxing employed workers. The novelty is that we explicitly introduce workers' social norms that shape both the individual participation decision of workers and wage bargaining. We find that social norms increase the likelihood of multiplicity of equilibria and somewhat facilitate the emergence of indeterminacy and flip bifurcations, constituting therefore a source of business cycles driven by self-fulfilling volatile expectations, i.e. sunspots. We also find that, in the presence of strong social norms, standard policy recommendations that advocate a decrease in unemployment benefits in order to boost employment are no longer valid. Indeed, our simulation results show that the opposite will happen for empirically plausible levels of the unemployment rate.
Subjects: 
flip bifurcations
local indeterminacy
steady state multiplicity
sunspots
workers' social norms
unemployment benefits
JEL: 
E32
H23
H31
J65
Document Type: 
Working Paper

Files in This Item:
File
Size
265.25 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.