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Contracting productivity growth

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Author Info
Francois, P.
Roberts, J. (Tilburg University, Center for Economic Research)

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Abstract

In this paper, we analyze the interactions between growth and the contracting environment in the production sector. Allowing incompleteness in contracting implies that viable production relationships for firms and workers, and therefore the profitability of industries, depend on the rates of innovation and growth. The speed at which new innovations arrive in turn depends on the profitability of production, for the usual reasons examined in the endogenous growth literature. We show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment. In particular, we demonstrate that a technological shock (increasing productivity of research) can, through this interaction, lead to a productivity slowdown and a shift in labor market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter-term "contractor" type arrangements. We show the consistency of an increase in the proportion of the labor force under short term employment, increased relative returns of workers in high productivity sectors, and increased income inequality, with a productivity slowdown of finite duration.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 35.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:200135

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  1. Olaf Posch & Klaus Wälde, 2006. "Natural volatility, welfare and taxation," Working Papers 2007_33, Department of Economics, University of Glasgow. [Downloadable!]
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  2. Patrick Francois & Huw Lloyd-Ellis, 2004. "Investment Cycles," Macroeconomics 0405005, EconWPA, revised 05 May 2004. [Downloadable!]
  3. Francois, P. & Lloyd-Ellis, H., 2003. "Co-movement, capital and contracts: 'normal' cycles through creative destruction," Discussion Paper 62, Tilburg University, Center for Economic Research. [Downloadable!]
  4. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2002. "Vertical Integration and Distance to Frontier," NBER Working Papers 9191, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. MARTIMORT, David & VERDIER, Thierry, 2003. "The Agency Cost of Internal Collusion and Schumpeterian Growth," IDEI Working Papers 170, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  6. Ottaviano, Gianmarco I P, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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