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Flexibility, Investment, and Growth

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Giuseppe Bertola

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Abstract

This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the general equilibrium effects of obstacles to labor mobility. Labor mobility costs reduce private returns to investment, imply a slower rate of endogenous growth, and unambiguously lower a representative agent's welfare. If external effects are disregarded, restricted labor mobility may be consistent with higher wage levels in full employment equilibrium: this may help explain why labor's political representatives often tend to decrease labor mobility in reality, rather than to enhance it. The lower growth rate of "disembodied" productivity, however, implies slower wage growth in equilibrium, with negative welfare effects even for agents who own only labor.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3864.

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Date of creation: Oct 1991
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Publication status: published as Journal of Monetary Economics, vol 34, 1994, pp 215-238
Handle: RePEc:nbr:nberwo:3864

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  1. Bassanini, Andrea & Nunziata, Luca & Venn, Danielle, 2008. "Job Protection Legislation and Productivity Growth in OECD Countries," IZA Discussion Papers 3555, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Vindigni, Andrea, 2008. "Uncertainty and the Politics of Employment Protection," IZA Discussion Papers 3509, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Vindigni, Andrea, 2008. "Uncertainty and the politics of employment protection," P.O.L.I.S. department's Working Papers 106, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  4. Miquel Faig, 1997. "INVESTMENT IRREVERSIBILITY IN GENERAL EQUILIBRIUM: Capital Accumulation, Interest Rates, and the Risk Premium," Working Papers faig-97-01, University of Toronto, Department of Economics. [Downloadable!]
  5. Thomas M. Steger & Lucas Bretschger, 2005. "Globalization, the volatility of intermediate goods prices and economic growth," Economics working paper series 05/40, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  6. Koeniger, Winfried, 2002. "Employment Protection, Product Market Competition and Growth," IZA Discussion Papers 554, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Graziella Bertocchi, 2003. "Labor Market Institutions, International Capital Mobility, and the Persistence of Underdevelopment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 637-650, July. [Downloadable!] (restricted)
  8. Markus Poschke, 2006. "Employment Protection, Firm Selection, and Growth," Economics Working Papers ECO2006/35, European University Institute. [Downloadable!]
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  9. Bertola, Giuseppe, 2002. "A Pure Theory of Job Security and Labour Income Risk," CEPR Discussion Papers 3430, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Thierry Tressel, 2008. "Does Technological Diffusion Explain Australia's Productivity Performance?," IMF Working Papers 08/4, International Monetary Fund. [Downloadable!]
  11. Maurice Obstfeld, 1995. "Risk-Taking, Global Diversification, and Growth," NBER Working Papers 4093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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