Long term effects of the efficiency wage hypothesis in Goodwin-type economies.

The existence of an efficiency wage mechanism in Goodwin-type models may lead to the unexpected appearance of an economically meaningful equilibrium with zero labour share, which is globally stable for some parameter constellation and allows the system to attain its ‘maximal growth'. A subsequent ‘normative’ comparison between the possible long-term regimes of the economy shows that (1) the zero labour share equilibrium can be the ‘preferred’ equilibrium in terms of welfare; (2) in all the long-term regimes the welfare is higher than in the original Goodwin model; (3) a point of maximal welfare exists. Moreover, the effects of rational behaviour of firms are compared with the ‘traditional’ situation in which rationality is not explicitly assumed. A striking result appears: myopic rationality can have deleterious effects on the profit of firms and on the overall welfare of the economy.