Rent appropriation and sustained growth

This paper demonstrates that the introduction of imperfect competition into the labor market can solve the problem isolated by Jones and Manuelli (Journal of Economic Theory, 1992, 58, 171–197), and Boldrin (Journal of Economic Theory, 1992, 58, 198–218), that in economies with convex technologies and finitely lived agents, real wages may not grow fast enough for unbounded growth to be sustained. I show that if wages are determined by a bargaining solution, and if the bargaining power of the workforce is sufficiently high (if they appropriate a sufficiently large proportion of rents), then growth is unbounded. Moreover, the growth path generated by such an economy may improve the welfare of all generations apart from the initial old.