TY  - RPRT
        AU  - Ferreira, Rodolphe Dos Santos
AU  - Lloyd-Braga, Teresa
AU  - Modesto, Leonor
        TI  - Employment Dynamics and Redistributive Policies under Workers' Social Norms
        PY  - 2014/Jan/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 7888
        UR  - https://www.iza.org/publications/dp7888
        AB  - We study employment dynamics using an OLG model with unemployment benefits and universal old-age survival pensions, both financed by taxing employed workers. The novelty is that we explicitly introduce workers' social norms that shape both the individual participation decision of workers and wage bargaining. We find that social norms increase the likelihood of multiplicity of equilibria and somewhat facilitate the emergence of indeterminacy and flip bifurcations, constituting therefore a source of business cycles driven by self-fulfilling volatile expectations, i.e. sunspots. We also find that, in the presence of strong social norms, standard policy recommendations that advocate a decrease in unemployment benefits in order to boost employment are no longer valid. Indeed, our simulation results show that the opposite will happen for empirically plausible levels of the unemployment rate.
        KW  - workers' social norms
KW  - sunspots
KW  - steady state multiplicity
KW  - local indeterminacy
KW  - flip bifurcations
KW  - unemployment benefits
        ER  -