Table of Contents
Economics Research International
Volume 2014, Article ID 218353, 15 pages
http://dx.doi.org/10.1155/2014/218353
Research Article

Segmented Labor Markets and the Distributive Cycle: A Roadmap towards Inclusive Growth

1International Labour Organization, 1211 Geneva, Switzerland
2Bielefeld University, 33615 Bielefeld, Germany
3University of Osnabrück, 49069 Osnabrück, Germany
4University of the Witwatersrand, Johannesburg 2050, South Africa

Received 9 January 2014; Accepted 7 April 2014; Published 30 April 2014

Academic Editor: David E. Giles

Copyright © 2014 Matthieu Charpe et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The paper builds on the Goodwin (1967) model which describes the distributive cycle of capitalist economies whereby mass unemployment is generated periodically through the conflict about income distribution between capital and labor. We add to this model a segmented labor market structure with fluid, latent, and stagnant components. The model exhibits a unique balanced growth path which depends on the speeds with which workers are pushed into or out of the labor market segments. We investigate the stability properties of this growth path with segmented labor markets and find that, though there is a stabilizing inflation barrier term in the wage Phillips curve, the interaction with the latent and stagnant portions of the labor market generates potentially (slowly) destabilizing forces if policy measures are absent that regulate these labor markets. We then introduce an activating labor market policy, where government in addition acts as employer of last resort thereby eliminating the stagnant portion of the labor market, whilst erecting benefit systems that partially sustain the incomes of workers that have to leave the floating/latent labor market of the private sector of the economy. We show that such policies guarantee the macrostability of the economy’s balanced growth path.