The Political Economy of Complex Evolving Systems

This chapter presents an application of the multisector labor-augmented Schumpeter Meeting Keynes (K+S) agent-based model to two contemporary challenges in political economy, namely declining unionization and rising inequality, with reference to medium-term evidence in the United States. What has been the effect of declining unionization? The model proves to be a promising tool to confront different scenarios emerging from the interaction of an endogenous dynamic competition between union and non-union firms, the latter arriving at a specific time. The arrival of non-union firms induces direct first-order effects, in the form of rising inequality in the workplace and at the macro level, but also indirect second-order effects, in the form of lower rates of labor absorption, and demand patterns skewed toward luxury consumption goods for the wealthy. In that, complexity economics proves to be a promising avenue to incorporate and confront the grand challenges of contemporary capitalism.