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Labour Market Rigidity and Economic Efficiency with Non-General Purpose Technical Change

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  • Grimalda, Gianluca

Abstract

The contrasting effects of labour market rigidity on efficiency are investigated in a model where technological change is non-general purpose and different types of skills are available to workers. Ex ante efficiency calls for high labour market rigidity, as this favours workers’ acquisition of specific skills which have higher productivity in equilibrium. Ex post efficiency calls for low market rigidity, as this allows more workers to transfer to the innovating sector of the economy. The trade-off between these two mechanisms results in an inverse-U shaped relationship between output and labour market rigidity, which implies that a positive level of labour market rigidity is in general beneficial for the economy.

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File URL: http://mpra.ub.uni-muenchen.de/7722/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7722.

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Date of creation: 30 Dec 1971
Date of revision: 12 Mar 2008
Handle: RePEc:pra:mprapa:7722

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Keywords: Non-general purpose technology; labour market rigidity; specific and general human capital;

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  1. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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