Macrodynamics of a Wage Inequality Economy with the Procyclical Behavior of Average Labor Productivity

Abstract

  This study examines economic disparities through the lens of wage inequality. We analyze the macroeconomic effects of changes in key parameters related to wage inequality and average labor productivity (ALP) using a high-dimensional dynamic Keynesian model that incorporates an endogenous growth cycle with wage inequality. Building on the traditional labor-saving technical progress function, we aim to formulate a more comprehensive ALP function that explicitly includes labor-intensive behavior. We argue that the procyclical behavior of ALP is a fundamental contributor to the dynamic stability of an economy with wage inequality, and that some components of this behavior function as built-in stabilizers.