This paper develops an overlapping generations (OLG) model including (i) a productive externality as an engine of endogenous growth and (ii) wage setting by trade unions as the cause of unemployment. Within this framework, the paper considers growth and unemployment affected by public pensions...

Pension benefits in old age establish a disincentive to save in youth, thereby yielding lower levels of capital stock and the wage rate. As a result, the trade union has an incentive to change the composition of its two targets: employment and the wage rate. This paper develops a model that...