Disequilibrium growth theory with insider–outsider effects

Ito has applied the non-Walrasian regime switching methodology to the Solovian neoclassical growth model and discussed the occurrence of regimes of full employment, overemployment and underemployment and the different dynamical systems (to be patched up) these regimes give rise to. We shall show in this paper that nothing of this sort really characterizes Solovian growth with non market-clearing real wages if overor under-time work of the workforce within the firms (the insiders) is taken into account. This simple extension of the two-dimensional dynamical systems of Ito by one dimension implies that there is only one regime possible (the Goodwinian classical regime) with a 3D dynamics that are easily made globally stable and which moreover are often globally asymptotically stable, and this even more when substitution and endogenous growth are added to the model. © 2000 Elsevier Science B.V. All rights reserved. JEL classification: E12; E13; E31