IMPERFECTLY COMPETITIVE FINANCE, SENIORITY WAGES AND ECONOMIC GROWTH

If households and firms face different interest rates, there may be mutual gains in forming seniority wage contracts, which facilitate implicit saving by younger workers, who might otherwise save either little or nothing at all at low interest rates. A three-period OLG model is presented with monopolistic competition in the finance sector to endogenise the interest rate differences plus a Romer (1986) production technology to explain the growth rate. We find that growth may be higher under seniority wages than under spot wages, because of a Kaldorian effect working with an income distribution that favours higher (middle-aged) savers...