Endogenous Technical Change, Employment and Distribution in the Goodwin Model
AbstractThe Goodwin (1967) model of the growth cycle assigns distributional conflict a central role in the dynamics of capital accumulation, but is silent on the determinants of technical change. Following Shah and Desai (1981), previous studies focused on the effects of the direction, or bias of technical change on the growth cycle (van der Ploeg, 1987; Foley, 2003; Julius, 2005). Either implicitly or explicitly, these contributions adopted the induced innovation hypothesis by Kennedy (1964): there exists an innovation possibility frontier out of which profit-maximizing firms freely choose the optimal combination of capital- and labor-augmenting technical change, without having to allocate resources to R&D. Our focus is instead on the choice of intensity of technical change, that is the share of R&D expenditure in output. In our framework, innovation is a costly, forward-looking process financed out of profits, and pursued by owners of capital stock (capitalists) in order to foster labor productivity and save on labor requirements. Our main findings are: (i) similarly to the literature on the direction of technical change, an endogenous intensity of R&D ultimately dampens the distributive cycle; however, (ii) steady state per capita growth, income distribution and employment rate are endogenous, and depend on the capitalists' discount rate, the institutional variables regulating the labor market, and the size of subsidies to R&D activity. Implementing the model numerically, we show that: (iii) a reduction in the capitalists' discount rate lowers per-capita growth, the employment rate and the labor share; (iv) an increase in workers' bargaining power raises the labor share, while reducing employment and per-capita growth; (v) a balanced budget increase in the R&D subsidy also fosters per-capita growth, at the expenses of the labor share. The variations corresponding to (iv) and (v), however, can be small.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 127-2013.
Length: 19 pages
Date of creation: 2013
Date of revision:
Endogenous Technical Change; Goodwin Model; Income Shares; Employment;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Foley, Duncan K., 2003. "Endogenous technical change with externalities in a classical growth model," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 167-189, October.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- Smulders, Sjak & van de Klundert, Theo, 1995.
"Imperfect competition, concentration and growth with firm-specific R & D,"
European Economic Review,
Elsevier, vol. 39(1), pages 139-160, January.
- Smulders, J.A. & Klundert, T.C.M.J. van de, 1995. "Imperfect competition, concentration and growth with firm-specific R&D," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153407, Tilburg University.
- Carlo V. FIORIO & Simon MOHUN & Roberto VENEZIANI, 2013.
"Social Democracy and Distributive Conflict in the UK, 1950-2010,"
Departmental Working Papers
2013-09, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 16 May 2013.
- Carlo V. Fiorio & Simon Mohun & Roberto Veneziani, 2013. "Social Democracy and Distributive Conflict in the UK, 1950-2010," UMASS Amherst Economics Working Papers 2013-06, University of Massachusetts Amherst, Department of Economics.
- Giammario Impullitti, 2010.
"International Competition And U.S. R&D Subsidies: A Quantitative Welfare Analysis,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1127-1158, November.
- Giammario Impullitti, 2008. "International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis," Economic Reports 15-08, FEDEA.
- Giammario Impullitti, 2008. "International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis," Economics Working Papers ECO2008/11, European University Institute.
- D Harvie & M A Kelmanson & D G Knapp, 2007. "A Dynamical Model of Business-Cycle Asymmetries:Extending Goodwin," Economic Issues Journal Articles, Economic Issues, vol. 12(1), pages 53-92, March.
- Carlo V. Fiorio & Simon Mohun & Roberto Veneziani, 2013. "Social Democracy and Distributive Conflict in the UK, 1950-2010," Working Papers 705, Queen Mary, University of London, School of Economics and Finance.
- A. J. Julius, 2005. "Steady-State Growth And Distribution With An Endogenous Direction Of Technical Change," Metroeconomica, Wiley Blackwell, vol. 56(1), pages 101-125, 02.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz).
If references are entirely missing, you can add them using this form.