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The Conundrum of Recovery Policies: Growth or Jobs?

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  • Elias Dinopoulos

    ()
    (University of Florida, Department of Economics, Gainesville, USA)

  • Wolf-Heimo Grieben

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Fuat Sener

    ()
    (Department of Economics, Union College, Schenectady, New York, USA)

Abstract

This paper adopts a Neo-Schumpeterian approach to macroeconomics, by proposing a model which includes fully-endogenous growth, involuntary search-based unemployment, and financial frictions. The model analyzes the effects of several recovery policies used by governments to fight unemployment or/and enhance growth. Employment protection legislation reduces growth and unemployment. Policies that reduce the cost of job vacancies decrease unemployment and raise growth. Industrial policies in the form of production subsidies to young small firms, production taxes to adult large firms, and R&D subsidies increase growth and unemployment. Policies that reduce financial frictions accelerate growth but exert an ambiguous effect on unemployment.

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Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-03.

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Length: 44 pages
Date of creation: 13 Feb 2012
Date of revision:
Handle: RePEc:knz:dpteco:1203

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Related research

Keywords: fully- endogenous growth; Schumpeterian unemployment; financial frictions; recovery policies; vacancy creation;

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  1. James B. Ang & Jakob B. Madsen, 2011. "Can Second-Generation Endogenous Growth Models Explain the Productivity Trends and Knowledge Production in the Asian Miracle Economies?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1360-1373, November.
  2. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
  3. Ricardo J. Caballero, 2007. "Specificity and the Macroeconomics of Restructuring," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033623, December.
  4. Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2010. "Macro Risk Premium and Intermediary Balance Sheet Quantities," IMF Economic Review, Palgrave Macmillan, vol. 58(1), pages 179-207, August.
  5. Grieben, Wolf-Heimo & Sener, Fuat, 2009. "Globalization, rent protection institutions, and going alone in freeing trade," European Economic Review, Elsevier, vol. 53(8), pages 1042-1065, November.
  6. Joonkyung Ha & Peter Howitt, 2007. "Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 733-774, 06.
  7. Elias Dinopoulos & Douglas Waldo, 2005. "Gradual Product Replacement, Intangible-Asset Prices and Schumpeterian Growth," Journal of Economic Growth, Springer, vol. 10(2), pages 135-157, 06.
  8. Madsen, Jakob B., 2007. "Are there diminishing returns to R&D?," Economics Letters, Elsevier, vol. 95(2), pages 161-166, May.
  9. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-64, December.
  10. Jakob Madsen, 2008. "Semi-endogenous versus Schumpeterian growth models: testing the knowledge production function using international data," Journal of Economic Growth, Springer, vol. 13(1), pages 1-26, March.
  11. Roger E. A. Farmer, 2009. "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 357-358, 09.
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