This paper depicts the negative impact of a falling real wage caused by reduced bargaining power of workers on aggregate demand and employment. Contrary to standard New Keynesian models, the presence of consumers not participating in financial markets (rule of thumb consumers) causes an...

Lower labour costs have ambiguous effects on domestic and foreign output in the presence of a transmission channel linking real wages with consumption and savings decisions of households. This transmission channel takes place via credit constrained households. The main result is that lowering...

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...