Marcelo C Pereira

When More Flexibility Yields More Fragility: The Microfoundations of Keynesian Aggregate Unemployment

Wages are an element of cost crucially affecting the competitiveness of individual firms. But the wage bill is also a crucial element of aggregate demand. Hence it could be that more “flexible�? and fluid labour markets, while allowing for faster inter-firm reallocation of labour, may also render the whole economic system more fragile, more prone to recession, more volatile. In this work we investigate some conditions under which such a conjecture applies. The paper presents an agent-based model that investigates the effects of two “archetypes of capitalism�?, in terms of regimes of labour governance – defined by the mechanisms of wage determination, firing, labour protection and productivity gains sharing – upon (i) labour market regularities and (ii) macroeconomic dynamics (long-term rates of growth, GDP fluctuations, unemployment rates, inequality, etc..). The model is built upon the “Keynes meets Schumpeter�? family of models (Dosi et al., 2010), explicitly incorporating different microfounded labour market regimes. Our results show that seemingly more rigid labour markets and labour relations are conducive to coordination successes with higher and smoother growth.

A History-Friendly Model of the Internet Access Market: The Case of Brazil

This paper presents a simulation model of the internet access services market. The model is based on neo-Schumpeterian evolutionary theory, as well as on the contemporary institutional theory. One key driver of the internet sector has been the significant technological opportunities. However, competition in the internet access services market has proved less intense than in other technology-driven industries in most countries, including other segments of the internet sector itself. Usual theoretical approaches do not adequately explain this empirical observation. Our hypothesis is that institutional mechanisms were determinant for the dynamics of competition. Institutions are broadly understood as socially shared, formal or informal, recurring rules of behaviour or thought. To test this hypothesis, a sectoral agent-based simulation model is proposed, modelling with some detail both demand and supply agents’ behaviours. Model parameters and initial conditions were calibrated using empirical data from the Brazilian market. The competitive mechanisms unveiled by simulation were clearly dependent on institutional processes, particularly at user preferences setting and informal business rules adoption. Institutional phenomena were strong enough to produce results that are significantly different from other technologically dynamic industries.

Causes and Consequences of Hysteresis: Aggregate Demand, Productivity and Employment

In this work we develop an agent-based model where hysteresis in major macroeconomic variables (e.g. GDP, productivity, unemployment) emerges out of the decentralized interactions of heterogeneous firms and workers. Building upon the model in Dosi et al. (2016, 2017), we specify an endogenous process of accumulation of workers’ skills and a state-dependent process of entry, studying their hysteretic impacts. Indeed, hysteresis is ubiquitous. However, this is not due to market imperfections, but rather to the very functioning of decentralised economies characterised by coordination externalities and dynamic increasing returns. So, contrary to the insider-outsider hypothesis (Blanchard and Summers, 1986), the model does not support the findings that rigid industrial relations may foster hysteretic behaviour in aggregate unemployment. On the contrary, in line with the recent discussion in Ball et al. (2014), this contribution provides evidence that during severe downturns, and thus declining aggregate demand, phenomena like lower investment and innovation rates, skills deterioration, and declining entry dynamics are better candidates to explain long-run unemployment spells and lower output growth. In that, more rigid labour markets dampen hysteretic dynamics by supporting aggregate demand, thus making the economy more resilient.

The Effects of Labour Market Reforms upon Unemployment and Income Inequalities: An Agent Based Model

This paper is meant to analyse the effects of labour market structural reforms by means of an agent-based model. Building on Dosi et al. (2016b) we introduce a policy regime change characterized by a set of structural reforms on the labour market, keeping constant the structure of the capital- and consumption-good markets. Confirming a recent IMF report (Jaumotte and Buitron, 2015), the model shows how labour market structural reforms reducing workers’ bargaining power and compressing wages tend to increase (i) unemployment, (ii) functional income inequality, and (iii) personal income inequality. We further undertake a global sensitivity analysis on key variables and parameters which confirms the robustness of our findings.

Schumpeterian Competition and Consumer Networks: An Exploration of the Internet Access Market

Markets undergoing fast-paced product evolution impose a significant informational demand on consumers. They may have to decide among relatively heterogeneous offers while lacking the knowledge required for a fully assessed choice of suppliers. In this case, one important information source is the social network wherein the consumer is immersed, by means of the word-of-mouth (WoM) phenomenon. We test WoM as a possible cause for the variegated market competition outcomes observed in real markets by investigating one prominent hi-tech case, the internet access service, in which the disparity among countries does not seem adequately tackled by the usual economic explanations. Applying an innovative approach, based on agent-based simulation and synthetic graph generation, we propose a model that is able to explain the connections between inter-firm competition and consumer decision process. The model robustly demonstrates the relevant effects of WoM on the organization of the industry in most situations. The results suggest that the competitive configuration of some real markets would be unlikely with-out the influence of WoM.