On the Dynamics of Economic Growth When Unemployment is Persistent

In this paper we analyze the so-called AK endogenous growth model with persistent unemployment due to wages rigidities that result from labor market imperfections. We demonstrate that existence of a balanced growth path implies that it is unique or that there exist two balanced growth paths, depending on structural parameters of the model. The balanced growth path associated with the higher growth rate is saddle point stable whereas the path yielding the lower long-run growth rate is either stable or unstable. Further, we show that a Hopf bifurcation may arise giving rise to persistent limit cycles